Low On Fuel

When the cost of a gallon of gas began to average $3 last summer, investors in auto parts retailers were hit hard. A few months earlier, Cid Wilson–senior analyst and director of research at Kevin Dann & Partners, a securities firm in New York City–assembled a portfolio of four auto parts retailers for BLACK ENTERPRISE. Initially, shares of his selections were on the right trajectory. In the end, it proved to be a volatile time for Wilson’s picks, which posted a decline of 2.8%, compared to the 12.8% climb of the Standard & Poor’s 500 stock index.

“In 2006, gasoline prices soared over the summertime, prompting people to hold back on major repairs of their vehicles and many found transportation alternatives,” says Wilson. But he says winter weather is likely to have caused vehicle damage which will flush out undone maintenance going into the spring and summer. That said, Wilson remains bullish and maintains a buy rating on all four stocks.

Though shares of Keystone Automotive Industries Inc. (KEYS), a Pomona, California-based distributor of collision replacement parts posted the steepest decline of 11%, Wilson still stands behind the stock with a $44 price target. Winter is the company’s high season, and he expects sales to have climbed in the high single digits.

That same confidence applies to shares of Advance Auto Parts Inc. (AAP), the Roanoke, Virginia-based retailer of auto parts and accessories. It was the only other stock in negative territory, down 6.4%. “A few years ago, only 12% of Advance Auto Part’s business came from commercial sales, whereas today it’s now close to 22%,” Wilson says. “This is important because the commercial industry is growing faster than the retail do-it-yourself industry.” As a result, Wilson rates the stock a “buy” with a price target of $44.

Company (Ticker) Price 1/27/06 Price 4/12/07 Total Return*
Advance Auto Parts (AAP) $42.66 $39.95 -6.4%
Keystone Automotive Industries Inc. (KEYS) 38.15 33.97 -11.0
Monro Muffler Brake Inc. (MNRO) 33.59 35.05 4.3
O’Reilly Automotive Inc. (ORLY) 32.51 33.10 1.8
Total Portfolio     -2.8
S&P 500 1,283.72 1,447.80 12.8

*Includes stock splits and dividends source: yahoo! Finance