March U.S. auto sales were disappointing, and the sector's stock performance has been dismal, as evidenced by the sliding share prices of Ford Motor,General Motors and Toyota Motor over the past year.
With many people already having bought new cars, the focus is shifting to maintenance and repairs. That benefits auto dealers and auto parts manufactures, making it the right time to pick up some of these stocks.
Here are three stocks that belong to a group of winning equities that should beat the market this year.
The largest junkyard and auto salvage auction operator, Copart actually benefits from accidents and storms, which cause damage to vehicles.
Since 2001, Copart's unit volume has had a compounded annual growth rate of 5%. In the most recent quarter, Copart reported earnings of 48 cents a share, up 20% from a year earlier, on revenue of $299.7 million, up 8.5%.
The Dallas-based company has bought new auction sites, bringing its total number of sites in Texas to 14. These new sites should help insurance clients, such asAllstate, Farmers Insurance and Nationwide Mutual Insurance, tackle the volume of cars affected by storms and floods, with the most recent being flooding in Houston and hail storms in north Texas.
Copart, which has had trouble building its software for use overseas, has made headway and commenced talks with insurers in continental Europe, according to Steven McBoyle, co-manager of the $2.4 billion Royce Premier Fund.
For the current fiscal third quarter, analysts expect earnings to come in at 55 cents a share, up almost 15% from the fiscal second quarter.
By next year, Copart's earnings per share should be higher by 40% at $2.30 a year, with the expectation of weak steel prices, according to McBoyle.
He also expects the stock to gain 20% to 25%.
For investors who are looking for stocks poised to post robust double-digit gains, Copart may be just the ticket.
LKQ is a leading distributor of after-market collision parts and mechanical after-market parts. It has become the distributor of choice among its customers due to its easy product availability and fulfillment rates.
LKQ has helped build its footprint with the acquisition of Pittsburgh Glass Works and RHIAG of Italy.
The company doesn't need to worry about major competition in a mature industry, but it does have to consider the risk of integration as it continues its acquisition spree, according to Wedgewood Partners.
With a mean recommendation of 1.3 (1 being a strong buy), analysts seem to have given a thumbs-up to the company. The median one-year analyst price target on the stock is $37, but it is $40 on the high end, which would represent a more than 20% increase.
On the earnings front, analysts expect LKQ to record 26.75% annual earnings growth over the next five years, more than double the industry's 11.83% figure and almost five times the S&P 500's earnings growth number.
Springfield, Mo.-based O'Reilly is a specialty retailer of automotive after-market parts, tools, supplies, equipment and accessories.
If new auto sales are indeed near their peak, O'Reilly stands to benefit as the aging of vehicles will need to be addressed. Moreover, the longer oil prices stay weak, it would translate to more miles being driven, thus requiring more frequent maintenance of vehicles.
O'Reilly has beaten analysts' earnings estimates for the past four quarters by a significant margin.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.