Will Auto Parts Stocks Follow Autozone’s Lead?

One of the big themes about the potential for growing automobile sales in the United States has to do with the fact that the average age of the car you see next to you on the highway is close to its highest level in more than a decade.

Another takeaway from this is that until drivers decide that their beloved vehicle is in need of replacement, one potential beneficiary of all these older cars still being on the road is the auto parts business.

This is how many have explained the success of companies like AutoZone (NYSE: AZO), which recently hit new, 52-week highs, and has since slipped into a sideways trading range. But from a short-term trader’s perspective, there may be more interesting opportunities in some of Autozone’s arguably less-accomplished rivals.

Among these is U.S. Auto Parts Network (NASDAQ: PRTS), an automotive parts retailer whose stock was trading at new, 52-week lows as recenty as November. Up more than 30% from those lows, shares of PRTS are now short-term overbought after closing higher for four days in a row. The stock was up intraday by more than one and a half percent, before fading toward breakeven into the close.

U.S. Auto Parts Network is scheduled to announce quarterly earnings on Monday. And given the stock’s recent strength – and even more recent fade – traders should not be surprised if the market’s reaction is to sell the news, regardless of whether that news is “apparently” positive or negative.

For its part, AutoZone is scheduled to announce earnings on Tuesday. Here, decreasing volatility as the stock’s trading range tightens could easily anticipate a significant reaction. Note that when Advance Auto Parts (NYSE: AAP) reported earnings back in mid-February, the stock gained more than 8% in a single session. AAP had been trading in a similar, albeit smaller, trading range in the days leading into the company’s earnings report.

Far more directional trading is already underway in another auto parts company, Genuine Parts Co (NYSE: GPC). Also reporting earnings on Monday, GPC has sold off aggressively in the wake of rallying to new, 52-week highs last week, and is now down more than 6% after closing lower for five days in a row.

The selling in GPC has put the stock in technically oversold territory for a second consecutive session, and earned the stock a positive edge in the short-term of more than three-quarters of a percent. GPC will take neutral ratings of 7 out of 10 into trading on Monday.

And be sure to read our latest from 7 Stocks You Need to Know: “Buying the Selling in Weight Watchers”.

David Penn is Editor in Chief of TradingMarkets.com