We recently compiled a list of the 8 Best Car Repair Stocks to Invest In. In this article, we are going to take a look at where Genuine Parts Company (NYSE:GPC) stands against the other car repair stocks.
An Overview of the Global Automotive Aftermarket Industry
According to a report by Fortune Business Insights, the global automotive aftermarket industry was valued at $418.95 billion in 2023. The market is expected to reach $568.19 billion by 2032. The acceptance of electric and hybrid vehicles is expected to propel the growth in demand for related aftermarket products. Moreover, the rise in automotive e-commerce is also contributing to increased sales in the market. As a result, major players in the industry are developing their omnichannel platforms to facilitate online automotive aftermarket services.
The KPMG Corporate Finance recently released its automotive aftermarket report for the fiscal third quarter of 2024. The report highlights that the decline in new car purchases can lead to growth for the aftermarket industry. Despite the recent cut in the Federal Reserve’s interest rates, experts believe new car purchases may not see an immediate uptick. This is because auto loan interest rates typically adjust slowly, thereby remaining high even after the Fed’s actions. Currently, average auto loan rates are still exceeding 9.61% for new vehicles and nearly 14% for used vehicles, which poses a significant barrier to new car purchases. As a result, many consumers are opting to defer vehicle purchases and are increasingly relying on the aftermarket for more affordable maintenance and repair solutions to extend the lifespan of their existing vehicles.
Moreover, the gradual adoption of battery-electric vehicles (BEVs) and software-defined vehicles is reshaping the automotive aftermarket landscape. While these advancements may lead to less frequent maintenance needs, they also introduce new service requirements related to battery systems and advanced electronics. According to forecasts from Bank of America Global Research, BEVs are expected to comprise about 8% of total vehicle sales in 2024, increasing to approximately 29% by 2030.
While analyzing the performance of the industry during the quarter, the report highlighted that the S&P 500 Index and Dow Jones Industrial Average (DJIA) saw significant growth over the past year, up 34.4% and 26.6%, respectively. The Automotive Aftermarket Index grew at a slower pace of 14.3%. However, it is noteworthy that in Q3 2024, this index outperformed both major indices with a growth rate of 8.4%. Specific segments within the aftermarket showed varied performance. For instance, the Parts Suppliers grew by 13.1% while Retailers & Distributors grew by 8.9%. The Enthusiast Products segment rebounded with an 11.3% increase after earlier declines, whereas Service Providers experienced a slight decline of 3.2%.
Regardless of the challenges stemming from high interest rates and inflation the automotive aftermarket has shown resilience and proved to be recession-proof. The shift towards maintaining older vehicles rather than purchasing new ones, combined with technological advancements in vehicle types is fueling growth in the industry. Moreover, trends suggest that while immediate growth in new car sales may be sluggish, there remains a robust demand for aftermarket services and products as consumers adapt to changing economic conditions.
Our Methodology
To curate the list of 8 best car repair stocks to invest in, we used the Finviz stock screener and other listings on the internet. Using our sources we aggregated a list of car repair stocks sorted by market capitalization. Next, we ranked these stocks by the number of hedge fund holders sourced from Insider Monkey’s third-quarter hedge funds database.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A line of mechanics diagnosing a recreation vehicle engine at a repair shop.
Genuine Parts Company (NYSE:GPC)
Number of Hedge Fund Holders: 27
Genuine Parts Company (NYSE:GPC) is a major global service provider that focuses on distributing replacement parts for both the automotive and industrial sectors. Its Automotive Part Group is one of the largest parts of the company as it generates more than 60% of the total revenue. The segment distributes a wide range of replacement parts for cars, trucks, and other vehicles, excluding body parts. Its automotive parts are available across North America, Europe, and Australasia, serving both individual customers and large businesses like repair shops and fleet operators.
The company operates its automotive parts business under the brand name NAPA, which includes around 2,000 company stores and around 4,800 independently owned stores in North America. Oakmark Equity and Income Fund in its Q3 2024 investor letter stated that Genuine Parts Company (NYSE:GPC) has a robust network of broad nationwide coverage, which translates as a difficult-to-replicate asset, thereby giving the company a competitive edge over its competitors.
Genuine Parts Company (NYSE:GPC) had a tough fiscal third quarter of 2024 with its Industrial segment global sales decreasing 1.1% year-over-year. However, its Automotive segment controlled the damage by a 2% increase during the same time resulting in total sales for the company growing 0.8% to reach $6 billion. Moreover, during the quarter management also completed the acquisition of MPEC, which is the independent owner in the US with 181 stores. The acquisition significantly increases GPC’s footprint in the automotive parts market by adding a substantial number of stores. This aligns with GPC’s strategy to own more of its stores and reduce reliance on independent owners, moving towards a more balanced ownership model.
Oakmark Equity and Income Fund stated the following regarding Genuine Parts Company (NYSE:GPC) in its Q3 2024 investor letter:
“Genuine Parts Company (NYSE:GPC) is a distributor of automotive and industrial replacement parts. The company primarily operates under the NAPA brand name in the automotive market and Motion Industries in the industrials market. The two business segments address different end markets but share some attractive traits. In both markets, the majority of sales are replacement parts, which leads to steady demand and dampened cyclicality. Customers often prioritize speed and service over price, which promotes a rational competitive pricing environment. Additionally, both markets are fragmented, with GPC representing one of a handful of scale players competing against a long tail of independent operators. The NAPA ecosystem, which includes nearly 2,000 company-owned stores and nearly 4,800 independently owned stores in North America, is a difficult-to-replicate asset that offers broad coverage nationwide. We see opportunity for the store base to operate more efficiently as management’s recent investments start to bear fruit. Motion Industries is the clear leader in its niche with roughly twice the revenue base of the closest direct competitor, and it differentiates itself via its technical salesforce and network density. Historically, GPC has consistently earned high returns on capital and supplements solid organic growth with value-accretive tuck-in acquisitions. The stock trades at a sizeable P/E discount to peers and the broader market, which we view as an attractive entry point.”
Overall GPC ranks 8th on our list of the car repair stocks to invest in. While we acknowledge the potential of GPC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GPC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.