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The auto parts industry group has slipped in the rankings in recent weeks, but it’s not for lack of solid companies in the group. It ranked No. 84 as of Thursday’s IBD. That’s down from No. 22 just six weeks ago. The reason seems to be that many of the stocks in the group are basing after making significant advances. The group has eight companies. Six of them have Composite Ratings of 80 or higher. The top company is O’Reilly Automotive ( ORLY ) with a Composite Rating of 97. It operates 4,571 auto parts stores and is opening more all the time. At an investor conference last August, the company told analysts that total U.S. miles driven is the No. 1 driver in the auto-parts business. That’s been flat at around 3 trillion miles since the financial crisis of 2008, but is starting to grow again as employment has gained. Falling fuel prices are also encouraging more driver to hit the road. As consumer confidence has improved, the size of the U.S. auto fleet has grown and is projected to grow more over the next few years. Even more important, better-engineered cars are lasting longer, resulting in an aging fleet that more often needs a replacement part. “We do not expect the average light vehicle fleet to decrease in the future,” the company said. O’Reilly isn’t the biggest of the auto parts chains — it ranks third behind AutoZone ( AZO ) and Advance Auto Parts ( AAP ) in number of stores — but it is the fastest growing, with a five-year annualized EPS growth rate of 25%. AutoZone has a 17% five-year average EPS growth rate, and Advance has a 15% rate. Each of the chains focuses on both the DYI, or do-it-yourself, market and the DIFM, or do-it-for-me market. AutoZone says the DYI market is a $51 billion-a-year industry that’s grown over the past 10 years at a 2.7% compound annualized growth rate. The DIFM market is $64 billion industry growing at a 2.2% clip. Auto parts chains aren’t the only companies in the industry group. LKQ ( LKQ ) is a company that distributes aftermarket replacement parts to body shops and mechanics. While AutoZone and O’Reilly appear to be in the final stage of forming bases, LKQ broke out of a cup-with-handle base Thursday with a 31.40 buy point. Volume was about one-third above average. It’s seeking to consolidate a fragmented industry by buying local businesses, while growing organically. The company acknowledges that the rise of collision avoidance systems being built into cars will hurt body shop businesses, but argues the effect will take years to come about. Copart ( CPRT ) is another company in the group also growing by acquiring smaller, local players. It conducts salvaged vehicle auctions for insurance companies, charities, dealerships and banks. Scalper1 News
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