Here’s why the chip shortage is a boon for auto repair and tune up stocks

on Jul 28, 2021
  • Used car prices surge as chip shortage curtail automobile production
  • O'Reilly is better positioned to continue taking market share
  • Two analysts bullish on O’Reilly

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The price of used cars has surged in recent months, attributed to the chip shortage experienced globally, according to CNBC. In fact, the price of used trucks and cars increased by over 45% in June and this trend represents a catalyst for auto tune-up and repair stocks. For instance, AutoZone (NYSE: AZO), O’Reilly Automotive (NASDAQ: ORLY), Advance Auto Parts (NYSE: AAP), and AutoNation (NYSE: AN) all set new highs this past week.

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Auto repair and tune up stocks performing well

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On Tuesday, Raymond James weighed in the group and upgraded Advanced Auto Part’s stock to a “Strong Buy,” adding that the turnaround story for the stock seems to be paying off. However, the firm downgraded AutoZone, but they are still bullish on the stock with an “Outperform” rating.

Because of its solid cash flow and exceptional supply chain capabilities, O’Reilly is likely to continue taking market share. But, surprisingly, the firm downgraded O’Reilly to “market perform” on the presumption of a softer long-term outlook compared to its history.

Laffer Tengler Investments’ chief investment officer Nancy Tengler shares the same sentiment on O’Reilly, picking the stock to be her top pick in the sector.  On Tuesday, She told CNBC’s Trading Nation:

“That’s how we want to play the used car market. If you’re a long-term investor and you own O’Reilly, for example, you want to hang on to that.”

O’Reilly has outperformed this year

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Another analyst bullish on the stock in the longer term is Miler Tabak’s chief market strategist Matt Maley. Maley told CNBC’s Trading Nation:

“The stocks continue on a technical basis to make nice higher lows and higher highs, including a nice higher high just recently. Both those things bode well on a long-term basis.”

Over the past month, O’Reilly has jumped 11%, and on Monday, it hit a record high. However, considering the strong outperformance the stock has had in 2021, Maley is a bit cautious in the near term. He said:

“If you look at their weekly RSI charts, relative strength index, they are getting overbought. So therefore, although you can continue to nibble at them here, you should wait to be aggressive until they pull back a little bit.”

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