This Auto Parts Play Should Bounce

One of our greatest recommendations was Autozone (AZO). A few months ago, at nearly $180 we were asked about a competitor, Advance Auto Parts (AAP) and we said it was not the time. The stock has now dropped 30 points, and we think it will find some support here. We expect to be able to pick up a few points on this play quite easily. 

The company has been around for a very long time. The company was founded in April 1932, when Arthur Taubman purchased three stores in Virginia from Pep Boys. Growing organically over the next 50 years, Advance Auto Parts was operating more than 150 stores by 1989, eventually reaching 649 stores in 10 states by 1996. In 1998, Advance doubled in size when the company acquired Western Auto Supply Company.  Significant growth continued in the new millennium as Advance became a publicly traded company on the New York Stock Exchange. In 2014, Advance acquired General Parts International, Inc., a leading privately-held distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the Carquest and Worldpac brands. 

 

 

 

Image source: Advance Auto Parts Website

The stock had seen some solid growth but has fallen off of late. We believe there is opportunity here. Here is the recent 6 month chart:

 

 

Image source: BAD BEAT Investing Chartist

We like the support we are seeing at $150 and suggest a buy at this level. We will keep a tight stop on this one and look to scalp some gains. If you opt to play options here I would either sell puts to raise some cash or do a simple deep in the money longer dated call, given the somewhat tight range of the stock. 

The play

Current price: $150.19

Target entry: $148-$151

Stop loss: $143

Target exit: $159-$163

Estimated time frame: 4-6 weeks

Preferred option: Sep 2019 $130 call (deep in the money) for $23.50-$24.00

Discussion

1 2 3
View single page >> |

Disclosure: This piece first appeared last week at BAD BEAT Investing. We are long AAP, AZO

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.