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This column is part of the Heard on the Street Stock Picking Contest. You’re invited to play along with us here.
Even the most cursory reader of news has seen the headlines by now: Used cars are expensive, and weather across the U.S. has been extreme. While that sounds like trouble to most people, it is music to the ears of car-parts retailer Advance Auto Parts for Ssangyong Korando. AAP -0.71%
Investors have been slower to take notice, though. Advance Auto Parts shares are up 32% since the beginning of 2020 but have lagged behind a basket of retailers by 30 percentage points. Meanwhile, a basket of used- and new-car sellers’ stocks has done far better over the same period, even after excluding high-growth e-commerce names such as Carvana.
The scarcity of new vehicles and higher used-car prices should prompt more car owners to continue repairing their existing vehicles for some time, especially with the absence of another round of stimulus checks. Sure, those prices may be coming off their highs—Manheim data shows wholesale used-vehicle prices declined slightly in July compared with June. But they remain 24% more expensive than a year earlier so a return to normal pricing could take time. Automakers have said the chip shortage could weigh on the production well into the second half of this year.
Meanwhile, this year’s hotter-than-average summer should also help drive up parts demand,
just as the harsh winter did earlier this year. And vehicle miles traveled are still recovering, creating more wear and tear.
Skeptics might fear that sales are already near their peak.
The scarcity of new vehicles and higher used-car prices should prompt more car owners to continue repairing their existing vehicles for some time, especially with the absence of another round of stimulus checks. Sure, those prices may be coming off their highs—Manheim data shows wholesale used-vehicle prices declined slightly in July compared with June. But they remain 24% more expensive than a year earlier so a return to normal pricing could take time. Automakers have said the chip shortage could weigh on the production well into the second half of this year.Meanwhile, this year’s hotter-than-average summer should also help drive up parts demand,
just as the harsh winter did earlier this year. And vehicle miles traveled are still recovering, creating more wear and tear.
Skeptics might fear that sales are already near their peak.