With the market and world in turmoil, investors might be wise to continue building a list of companies to consider when the storms have passed. Insider buying is a good place to fish for potential ideas. Unfortunately, last week’s activity didn’t have many companies we’d put on our consideration list.
Sometimes, though, investors can identify potential trends based on insider buying within the same industry, especially when the buyers are in specific subsectors. That’s the case this week. Insiders from AutoZone, Inc. (AZO) and Genuine Parts Company (GPC). Both are specialty retailers that sell replacement auto parts. There are less than 20 companies in that space. When insiders from multiple companies in such a tight circle of business are buying, it can mean the underlying industry trends are strong.
AutoZone Director Brian Hannasch bought nearly $500,000 of AZO. (1) He bought 299 shares at $1,879.53. That’s a bit on the expensive side for most individual investors. On the less expensive side, a pair of Genuine Parts directors made six-figure buys. Robert Loudermilk, Jr acquired 824 shares at $121.60 for $101,198 and John Holder purchased 2,200 shares at $118.86 for $261,492. (2)
Bloomberg Businessweek writers Michael Sasso and Raeedah Wahid report that soaring used car prices have car owners opting for car repairs instead of buying used cars. Their article states, “Americans who before the pandemic would buy another car rather than pay a few thousand dollars for a repair are now having to shell out $5,000 or more.” (3)
Before the pandemic, Americans would rather buy another car rather than pay for a $1,500 repair—now used cars are so unaffordable that drivers are shelling out $5,000 or more for even costlier repair bills https://t.co/PuwHxYGKtO via @BW
— Bloomberg (@business) February 9, 2022
Connecting the dots, the trend of repairing cars instead of buying a costly used car could be the reason insiders at AZO and GPC hit the buy button.
Both auto parts companies have been tracking the ups and downs of the overall market. As we type, Genuine Parts Company trades at $122.59 and is just $10 above its 52-week low of $112.64. From our view, $120 is a key price for the retailer. If GPC closed below $120, there is a good shot it could test $100. With the market on shaky ground, another downdraft might be enough to push GPC under triple-digits.
Wall Street forecasts Genuine Parts earning $8.14 per share for next year with sales hitting $21.52 billion. (4) In the last half-decade, GPC shares traded at an average Price to Earning (P/E) of 20.49 and average Price to Sales (P/S) ratio 0.82. If the auto parts company hits its 2023 consensus earnings and sales forecasts, then it would trade at $170.45 and $124.31 based on its average five-year P/E and P/S ratios, respectively.
Overall: Used car price inflation is driving car owners to the repair shop rather than the used car lot, which could be a major plus for auto parts companies like AutoZone, Inc. (AZO) and Genuine Parts Company (GPC). The latter of which individual investors might find more attractive due to their price difference (GPC – $122 vs AZO – $1,891).
As mentioned up top, market and political uncertainty could push financial markets lower. With GPC just a few dollars from key support, another wave lower could push the specialty retailer closer to $100, in our opinion. If we made the correct call, then Genuine Parts would have attractive upside to its potential price targets outlined above based on Wall Steet’s estimates and its average P/S and P/E valuations for the last five-year. Toss in a current dividend yield of 2.92%, and Genuine Parts Company (GPC) is a company you might want to add to your consideration for when current storms have passed.
1 – https://www.secform4.com/insider-trading/866787.htm
2 – https://www.secform4.com/insider-trading/40987.htm
3 – https://www.bloomberg.com/news/articles/2022-02-09/soaring-used-car-prices-leave-low-income-americans-paying-costly-repair-bills?utm_content=business&utm_source=twitter&utm_campaign=socialflow-organic&utm_medium=social&cmpid=socialflow-twitter-business
4 – https://finance.yahoo.com/quote/GPC/analysis?p=GPC