AAP Advanced Auto Parts has been a dismal performer of late in spite of the massive insider buying as presented below courtesy of the Washington Service.
Not sure what justifies the 11.79% relative underperformance of the name but we should find out Monday after the close when they report 3rd quarter earnings. Our own DCF analysis shows a deeply undervalued stock that should be priced closer to $200 than the its $145 Friday close. Everything since the election has been all about macro plays, not so much earnings. When you step back and analyze Trump’s main issue about auto manufacturing jobs being exported out of the U.S., it doesn’t take much analysis to come to the conclusion that to bring those jobs back from low cost countries like Mexico will cause a significant rise in costs. More expensive autos is good for guys in the parts business as we all will run these things longer. Interest rates picking up will also make buying a new care more expensive. Both are bullish for parts companies.
Part of the bear case against AAP is that Amazon is going into the parts business too and we all know what happens to anyone that competes with Amazon. Well, Trump has blasted Amazon as anti-competitive and it’s not a stretch to see that he has a point there. Based on recent stock market performance post-election, Amazon shareholder seem to be fretting about that.
So if AAP pulls of a decent earnings report, the all about the macro theme should put some much-needed wind in the sales for laggard Advanced Auto Parts. We are obviously long.