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As one of the most vital sectors of the global economy, investors are often looking for long-term opportunities in the automotive market. Two auto stocks that are presenting this opportunity and may be in store for a sharp rebound are Advance Auto Parts AAP and Ford F.
While both companies have faced headwinds in recent years, this has also presented a chance for investors to add meaningful positions in these popular auto stocks at a more reasonable valuation.
Advance Auto Parts is Reentering a Growth Phase
As a leading automotive aftermarket parts provider in North America, Advance Auto Parts announced in March that it had completed the store closure phase of its multi-year transformation and is now entering a growth phase.
Optimizing its retail footprint, Advance Auto Parts' transformation plan is aimed at repositioning the company for long-term success by operating more than 75% of its stores in markets where it has the No.1 or No.2 position based on store density, strengthening its presence in strategic communities.
On a national scale, this should help Advance Auto Parts to better compete with competitors like AutoZone AZO and O’Reilly Automotive ORLY. As a formidable disruptor to these automotive parts giants, what may be most intriguing to investors is that at $32 a share, AAP trades at a “fraction” of what AutoZone and O’Reilly trade at in terms of stock price. Most importantly, Advance Auto Parts is expected to post a sharp rebound on its bottom line in the coming years.
Image Source: Zacks Investment Research
Ford’s Outlook May be Better than Expected
With the U.S. starting to reach trade deals with many of its global trading partners, including China, import tariffs on automakers are expected to be lower than initially feared. Ford was at the center of this conversation and had previously estimated a $1.5 billion tariff impact this year, compared to many analysts' estimates of more than $2 billion.
Keeping in mind this was before this week’s announcement that the U.S. and China will lower their reciprocal tariffs, Ford has taken steps to offset 35% of the impact by adjusting supply chains and halting exports to China, which may not be as necessary. Plus, Ford is still expected to bring in more than $150 billion in annual sales for the foreseeable future. This makes it very advantageous to hold onto the historic automaker's stock at $10 a share, as Ford has shown a commitment to lowering its operating costs and has reacted promptly to a tougher macroeconomic environment.