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Stephen’s auto analyst Rick Nelson on the investment opportunities in the auto sector beyond the automakers.
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-- little pop quiz for you.
In the wake of the auto industry's best quarter since 2008 should you invest in the big auto makers.
Or in the companies that actually sell the cars themselves and fix them up.
Rick Nelson an auto analyst with Stephens has a very pointed opinion on -- started out first Chicago Innophos.
Business exquisite -- there's no denying -- that the auto industry is coming back they're selling in big numbers.
But you say that there better opportunities away from the national auto makers themselves the dealers or the parts makers why.
Now we like the auto dealers -- the recovery is definitely implies.
I we've got an average vehicle wage now approaching eleven years cell replacement demand is definitely fueling this recovery.
Finance.
Availability -- -- more planet -- -- very there's lots of new products more fuel efficient.
-- products -- used car.
-- trade in values are very stout and that's providing -- equity for our consumers turn to -- had stopped until a new car.
-- leverage.
To the business model of the auto dealers and we really think this is the place to -- what about that the parts makers are there real opportunities there.
Why don't cover the parts makers I do count -- the dealers.
Compete dealers to have a variable I expense structure -- that they can adjust.
Well to be operating environment.
Servers some parts is a high margin business activity for the dealers.
That enables them to navigate -- downturns while which -- did the during those 27 year low and auto sales hall of the companies were profitable.
There were beating us demand -- back cannot -- out of them.
Parts suppliers or uncertainties.
OEM.
Auto manufacturer.
Selena we were talking about how often people actually keep a car help curb what stretch of time and it turns out that it's about eleven years so would make sense that they would be interest it's certainly -- Fixing up those cars with the auto parts but looking back at the dealers that you do like.
Penske for example was -- name you like as very Sonic Automotive.
Let's pick some of these apart we have Roger Penske on the show she's a very Smart business -- this is -- company that's actually done pretty darn well affect the stock up about 27%.
Over the past year.
The one thing that worries me about a lot of these names though is the float is shorted in a pretty significant -- -- 14% of Penske floated -- what is that about should we worry.
If we're considering investing in something like that.
How we we've fanfare -- our recovery is stuff only of pliers and -- -- their shorts.
To cut covering those positions.
There's Suzhou largest most fragmented.
-- consumer segment in the United States we are in the very early stages.
-- consolidation.
In.
Auto -- The ability to navigate.
Volatility.
Because of that variable cost structure and because of the advantage of the service.
Business.
That these are you need chastised for the auto dealer model that.
Other work areas of Otto.
Sector charts don't.
And you know what's interesting and I want our viewers understand this is that the automaker stocks may be up a couple percentage points here and there.
But as you saw Penske a 27%.
-- up.
52%.
Over the past year.
-- a stunning you've got Sonic Automotive up 39%.
Do those gains continue though Rick is they're still opportunity to catch that wave.
Yeah we've had -- -- a lot of upside in those stocks whose.
We track back toward fifteen to sixteen million units other companies have managed expenses two nine to ten million.
The unit kind of sales environment so as as we do see this kind of recovery in auto sales we think a lot about is gonna fall but the bottom line.
There's stocks still look undervalued.
To us they just throw off lot of free cash flow.
And that that will be deployed toward acquisitions.
Your stock buybacks.
Or debt retirement.
Well folks you've got your your -- your idea here not the automakers but the auto dealers Rick thank you very much we appreciate you being on.
Thank you.
