Looking for an overlooked stock sector? Try auto parts

Auto industry titan Henry Ford once said, “A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”

So it goes in the increasingly lucrative auto parts industry, where the auto aftermarket sector is set to expand by 5.1% in 2025 (to $413.7 billion), after growing by 5.7% in 2024, according to S&P Global Mobility.

Industry analysts point to multiple reasons for the auto parts market’s burgeoning growth rate.

For starters, U.S. vehicle owners are hanging on to their vehicles longer and want to maintain their roadworthiness. Add to that the rise of the electric vehicle market, where 56 million EVs will be on the road and operational by the end of 2025, and as EV growth rates have risen by 47% since 2022, S&P Global reports.

"Based on the data we’re seeing, Americans are holding onto their cars for longer,” said Patrick Peterson, auto expert and team leader at GoodCar, in Boston, Mass. “The average age of vehicles on the road in the U.S. is now at a record high of 12.6 years, up from just 9.6 years in 2002.”

One of the main reasons for that scenario is the high cost of new vehicles. “The average price of a new car has surpassed $45,000, and with high interest rates, monthly payments have become harder to afford,” Peterson noted. “As a result, many people are choosing to spend money on repairs and maintenance instead of buying a new car.”

Currently, the average annual cost to repair and maintain a vehicle is approximately $419.42, representing a 43.6% increase from 2019. “In comparison, owning a new car costs much more,” Peterson added. “The average annual cost of owning a new car is around $7,612, which includes insurance, maintenance, fuel, and other expenses. So, even with rising repair costs, it’s still often cheaper to keep an older car than to buy a new one."

That sentiment is echoed by auto parts retailers, who are busier than usual right now.

“We’re seeing more activity in our service bays,” said Scott Kunes, chief operating officer at Kunes Auto and RV Group in Delavan, Wis. “Longer vehicle ownership means more oil changes, more brake jobs, and more replacement parts. That constant flow of maintenance work doesn’t really ebb with the economy; if anything, it picks up when people hold onto cars longer. In a lot of ways, maintenance has become the new car payment.”

The longer vehicles stay on the road, the more consistent the demand for parts and services becomes, making companies in this sector stable and attractive. “Additionally, many of these companies have shown consistent growth, even during economic downturns, making them a reliable option for investors seeking long-term returns,” Peterson said.

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Take these 3 high-gear auto parts stocks to the bank

Conducting due diligence on good auto parts stocks is no different from conducting due diligence on any other sector. These three action steps should help with your bumper-to-bumper auto parts review.

Examine the company’s fundamentals. For starters, reviewing how well the company’s managed, its track record for making a profit, and how sustainable its growth rate. “Next, consider the company’s position in the market,” Peterson advises. “For example, companies with strong brand recognition or a wide geographic reach tend to handle market changes better.” Check the dividend yield as well. “If a company pays regular or increasing dividends, it’s often a good sign of financial health,” Peterson noted. Review financials to ensure the stock is priced reasonably. “The auto parts market is competitive, so you want to ensure you're getting a good deal compared to the company’s potential for earnings,” Peterson added.

Once your due diligence is complete, consider adding these three sector stocks to your portfolio.

AutoZone (AZO)

Year-to-Date Performance: 35.99%

This Memphis, Tenn.-based auto parts retail chain has been consistently strong in both market performance and financial stability. “They’ve been making moves to expand, and their market position remains solid, which gives me confidence in their long-term growth,” Peterson noted.

While the stock is rolling in 2025, market mavens say AZO has plenty of open road ahead. UBS analyst Michael Lasser recently reiterated his ‘buy’ call on the stock with a 15.6% target price upgrade.

O'Reilly Automotive (ORLY):

Year-to-Date Performance: 36.44%

Trading at $108 per share in mid-September, O’Reilly has garnered impressive support from auto parts industry specialists, and investors may want to take note.

“O'Reilly has been outperforming its competitors for a while now, and their ability to maintain a solid balance sheet while expanding its store base is impressive,” Peterson noted. “Their focus on high-quality service is resonating with consumers, which positions them well for the future."

Commercial customers love the company, too, which should placate fence-sitting investors.

“We’re a business customer, not investors, but we’ve relied on O’Reilly and NAPA for years because they tend to have what we need when we need it,” said Ford Smith, founder at A1xpress, a freight and logistics services company in Freehold, N.J.

From an operational standpoint, Smith says O’Reilly has “been dependable.”

“If I were investing, I’d rather bet on the companies that are keeping fleets like ours on the road than the ones chasing flash,” he added.

Genuine Parts (GPC)

Year-to-Date Performance: 22.28%

Trading at $143 per share, Genuine Parts has paid a cash dividend to shareholders every year since going public in 1948 and has increased the annual dividend for an astounding 69 consecutive years.

“In my view, GPC is a buy and long-term hold stock,” said Robert R. Johnson, chairman at Economic Index Associates. “On average, it’s returned 10.27% for investors over the past 15 years. That’s considerably higher than the 5.13% annual return the auto parts industry has returned over that time period.”

GPC currently sells at a forward PE ratio of 16.37% which is a substantial discount to the market (S&P forward price-to-earnings is 22.4). “Plus, the stock has a forward dividend yield of 2.95%,” Johnson added.

Start thinking like an auto retailer

If you’re looking for an industry with steady demand and robust cash flow, companies in the auto parts sector make sense.

“Vehicles still need service whether the market’s up or down,” Smith said. “In our business, we don’t replace a van just because it’s getting older, but when it starts creating downtime we can’t afford. Until that point, we’ll put money into parts and repairs because it’s the more efficient play.”

That same logic applies to households right now. “Companies that sell brake pads, sensors, fluids, and core components will continue to see activity, even when new car sales slow,” Smith added.

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