Slowing growth, decreased wages, and rising unemployment all spell doom for new car sales. However, this doesn’t mean there isn’t money to be made in the automotive industry. There are plenty of companies who operate in the secondary automotive sector and who are in the business of repairing and maintaining used cars. In a recession, people are more likely to repair their current car rather then buy a completely new car. Some of the leading companies who operate in this secondary automotive sector include Monroe Muffler Brake Inc. (MNRO), AutoZone Inc. (AZO), and O’Reilly Automotive Inc. (ORLY).
Monroe Muffler Brake (MNRO) provides automotive under-car repair and tire services on a range of vehicles including passenger cars, light trucks, and vans. Some of the repair services available include muffler and exhaust systems, brakes, steering, suspension, and wheel alignment. Their maintenance services include oil changes, heating and cooling systems, belt installation, and transmission flush and fill service. Monroe Muffler Brake (MNRO) operates mainly along the eastern United States and as of 2008 operated 720 company-owned stores. This is a small-cap stock having a market cap of only $410 million, but has held up nicely as compared to other automotive stocks as it is only three points off it’s 52-week high of $26.20.
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AutoZone Inc. (AZO) operates as a specialty retailer and distributor of automotive replacement parts and accessories. Its stores offer a variety of products that are geared toward the do-it-yourself customers for use in car, van, sport utility vehicles, and light trucks. Their stores offer three types of car products, hard parts, maintenance items, and accessories. Hard parts include your brake pads, carburetors, clutches, axles, engines, mufflers, and fuel pumps. The maintenance items are products such as antifreeze, windshield washer fluid, belts, hoses, oil, air filters, spark plugs, and windshield wipers. Lastly, the accessories are comprised of non-automotive parts such as air fresheners, floor mats, seat covers, steering wheel covers, stereos, and cleaning products. Unlike Monroe Muffler Brake (MNRO) AutoZone Inc. (AZO) operates throughout the United States and also has stores in Mexico and Puerto Rico. AutoZone (AZO) is currently trading in the middle of its 52-week trading range at around $129 per share, which is well off it’s 52-week low of $84 per share reached just in November.
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Lastly, O’Reilly Automotive Inc. (ORLY) operates as a specialty retailer of aftermarket automotive parts, tools, equipment, and accessories. Its stores offer new and remanufactured hard parts including alternators, fuel pumps, water pumps, brake pads, engine parts, and chassis parts. It operates similarly to AutoZone (AZO) in that it also offers maintenance and accessories items like wiper blades, antifreeze, air filters, floor mats, seat covers, and auto body paint. However, O’Reilly Automotive (ORLY) differs in that it sells most of its products to professional installers, but does still market toward the do-it-yourself customers. O’Reilly Automotive (ORLY) operates 1,830 stores entirely in the United States. O’Reilly Automotive is a mid-cap company with a $3.62 billion market cap, and like many of its peers, has held up nicely during the recent decline in the stock market. O’Reilly Automotive is currently trading around $27 per share which is just four points off its 52-week high of $31.
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Overall, the secondary automotive market consisting of automotive repair and aftermarket automotive retail companies has outperformed the stock market as a whole. While they did sell off with the overall market, their share prices have rebounded as investors have realized the value of such companies during a recession. Since it doesn’t appear that this recession will be ending anytime soon, these companies still appear to have room for growth, which is a rarity in the stock market these days.
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Prudent investors should consider stock options when investing in the automotive industry, whether it’s new cars, aftermarket parts or refurbished parts. By using put options, the downside of an automotive investment can be limited. Investors can also use a married put stock options strategy limit their downside exposure and also generate income through covered calls and bear-call credit spreads.
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[tags] automotive, muffler, exhaust, brakes, steering, suspension, wheel alignment, oil changes, transmission, parts, van, sport utility vehicles, brake pads, carburetors, clutches, axles, engines, mufflers, fuel pumps, antifreeze, windshield washer fluid, oil, air filters, spark plugs, windshield wipers, steering wheel, Mexico, Puerto Rico, alternators, aftermarket, refurbished parts, AZO, Autozone Inc., ORLY, OReilly Automotive Inc, bear-call credit spreads, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]