A recent report by Morgan Stanley focused on the 2015 outlook for do-it-yourself auto parts retailers. Despite many potential headwinds for the sector, analysts remain bullish on a handful of top names.
The Bear Case
There has been a high historical correlation between the DIY auto sales and the size of the 7-13 year-old car parc (the number of cars currently being driven). Analysts project about a 5 percent reduction in the size of this critical number in 2015.
If historical correlations hold, this reduction is a bad sign for the DIY auto sector. In addition, the sector has already outperformed the overall market during the past decade.
The Bull Case
While analysts admit that top-line growth could slow in 2015, they see many reasons why a reduction in car parc could be offset. Technological advancements that extend the lifetime of modern cars might also be expanding the upper boundary of the car parc “sweet spot” to higher than 13 years. Evidence that car owners drive modern cars longer can be seen in the recent reduction in scrappage rates.
Analysts also see the potential for consolidation in a highly fragmented DIY space that could lead to a better, less competitive pricing environment in the future.
Finally, lower gas prices free up disposable income that can be spent on DIY car improvements.
Stock Picks
Morgan Stanley analyst Simeon Gutman believes DIY auto investors will have a good year. “We think fundamentals and market expectations should be conducive for DIY Auto stocks to work in 2015.”
Morgan Stanley’s picks in the space include…
Read the rest of this article (and all my other articles) for free on Benzinga by clicking here
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!