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AutoZone, Inc. (AZO), O’Reilly Automotive Inc (ORLY), Advance Auto Parts, Inc. (AAP): 3 Stocks to Take Advantage of an Auto Rebound

As the unemployment rate decreases and consumer sentiment increases, the auto market is improving.  Now, not only are manufacturers benefiting from this dynamic, but auto parts companies are also experiencing growth. Take a look at these 3 auto-related businesses–you might like what you see.

Get in the zone

AutoZone, Inc. (NYSE:AZO)

AutoZone, Inc. (NYSE:AZO) is an efficient operator among the specialized auto parts retailers. The company trades with a P/E around 16, well below the industry’s average. It also has operating  (19.3%) and net (11%) margins, higher than industry average.  Its revenue has increased by 4% to $2.2 billion in the last quarter and its bottom line rose by 6% to $266 million. Lastly, its cash from operations increased 9% to $896 million, and its free cash flow increased 11% to $637 million.

As you can see, strong demand for autos should propel AutoZone, Inc. (NYSE:AZO)’s stock higher. Its nationwide presence is huge and customers generally end up in its stores to buy auto parts. It also caters to independent mechanics, which appeals to customers who want to fix it themselves.  Its in-house lending tool program is geared towards gaining these customer’s loyalty.

AutoZone, Inc. (NYSE:AZO) has also expanded its share repurchase program as it has a strong cash position. Its free cash flow has increased every year since 2008, and that’s not likely to change.  Overall, AutoZone, Inc. (NYSE:AZO) is good buy in this space.

O’Reilly Automotive Inc (NASDAQ:ORLY) acquired CSK Auto in 2008, which helped it become one of the top auto part retailers in the country.  Although it specializes in the “do it for me” market (DIFM), improvement in the auto industry should propel the stock to higher levels.

The company trades with a P/E of 22.5, which is above the industry’s average.  But it deserves that price as its balance sheet carriers a lower debt to equity ratio than industry average.  Its sales in the last quarter increased 3% to $1.58 billion. Its net income also increased by 4% to $154 million, or $1.36 per share.

O’Reilly Automotive Inc (NASDAQ:ORLY) should continue to perform well in the future. Its gross margin and operating margin have been improving over the last 10 years.  Additionally, it has approved an increment of $500 million to its already established share repurchase program.  Its free cash flow has declined over the past year, but it still should be enough to cover any capital needs.

It also sports a positive same store sales increase and it expects a healthy 3% to 5% growth in same store sales for this year. Further it’s rapidly expanding and the penetration in the Northeast region of the country is solid. Overall, O’Reilly Automotive Inc (NASDAQ:ORLY) should continue to perform well in the future.