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When most investors decide to invest in the auto industry, they start buying shares of Ford Motor Company (NYSE: F), Mitsubishi (TYO: MSBHY), Nissan (NASDAQ: NSANY) or some other big one. Car manufacturer. But what about the companies that help keep these vehicles safe, functional, and on the road?
In addition to car manufacturers, you can also invest in companies that sell parts and tools to repair and improve the vehicles themselves. Auto parts inventories allow you to invest in auto parts distributors – and many of these investment opportunities represent hot inventory under $ 20.
Overview: Automotive Parts Inventories
An auto parts inventory is an inventory that represents a business that manufactures or distributes parts for the repair, maintenance or improvement of vehicles. An auto parts company may sell parts only to auto manufacturers (original equipment manufacturers) or it may sell products directly to consumers (aftermarket sales).
Specialty auto parts manufacturers may focus their resources on creating parts for a specific type or brand of vehicle. This is especially true when it comes to luxury cars, which often require expensive specialized parts.
The auto parts industry is worth an estimated $ 130 billion. Some products sold by auto parts manufacturers include:
- Brake pads
- Oxygen sensors
- A / C refrigerant systems
- Accessories used for maintenance or cosmetic improvements (washing and waxing materials, window tinting, etc.)
Auto parts inventories have the potential to do better during times of recession and economic downturn. When new car sales decline, more consumers who would have bought a new car may have a greater incentive to repair their existing vehicle. This leads to increased sales of parts, which can cause the auto parts stock market to exceed the inventories of auto manufacturers.
Many auto parts manufacturers and distributors now also offer specialized service options to commercial customers. This in-person service helps them fight against major online retailers like Amazon (NYSE: AMZN) and Walmart (NYSE: WMT), which don’t have the technical knowledge or as many storefronts to offer such expertise.
Best Online Brokers For Auto Parts Stock
It doesn’t matter if you are shopping for auto parts stocks or looking for stocks under $ 5, you need a brokerage account before you start investing. An online broker will help facilitate your buy and sell orders – and many brokers now offer $ 0 commission on trades. If you don’t have a brokerage account yet, consider our favorites below.
Features to look for in an auto parts inventory
Not all auto parts inventory is equal in value. When comparing auto parts inventories, look for these key features:
- A low P / E ratio: A price-to-earnings (P / E) ratio is a measure used to compare the current price of a stock to the current earnings of the company. If a P / E ratio is low, it may indicate that the stock is undervalued, which means more potential for profit. On the other hand, if the P / E ratio is high, it may indicate that the stock is overvalued.
- A reasonable D / E ratio: Even the most successful business may need to borrow money during a recession. A company’s debt-to-equity ratio (D / E) indicates what proportion of shareholders’ funds are used to finance assets. A low D / E ratio means that a business has a manageable level of debt. A high D / E ratio can mean serious financial problems ahead.
- A plan to fight the online market: Online retailers like Amazon and Alibaba (BABA) have taken a bite out of almost every consumer-oriented industry, from fashion to cleaning products. These companies have also started to attack the auto parts industry.
Before investing in an auto parts inventory that primarily deals with aftermarket sales, research the company’s strategy to tackle the online parts retailer walk. Whether it’s a full in-person repair center, extensive online sales, or exclusive luxury vehicle parts, make sure the companies you invest in have a plan.
Add auto parts to your portfolio
A few auto parts inventories can be the perfect addition to any short or long term investment goal. Remember, you should never put all of your investment “eggs” in one basket. If you do decide to add auto parts stocks to your portfolio, make sure that they are only a small percentage of your total allocation.
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