Crash your car? Turn that frown upside down, I’ve got an investment opportunity for you
Lame title, I know, but I do have an interesting idea to write about so deal with it ;). It’s funny how being OCD about investing changes your perspective on things. I see the conversations that I have with people in a different light now than I used to, in a Peter Lynch sort of way. Here’s a great example. As some of you who have read my blog before know, during the day I work in a field that is related to the auto industry. Yesterday I was speaking with the manager of a large dealership about how business is. Not surprisingly, it’s pretty bad. That’s not the interesting part of the conversation though. What I found especially intriguing was when he told me that he has seen a significant up tick in auto parts sales to independent repair shops. If this is a wide-spread phenomenon, it means that in tough economic times, like what we are currently experiencing, consumers are choosing to repair their vehicles to keep them on the road longer instead of buying something new. Not only are they choosing to repair them, but they are doing so as cheaply as possible by going to independent repair shops rather than the more expensive dealership service departments.
This story immediately made me think of a company that I read a short blurb about in Smart Money magazine the other day, LKQ Corp. (LKQX). Its shares of have been under pressure over the past couple of weeks because California is considering passing a law banning the use of recycled auto parts in insurance repairs. Goldman published a note yesterday stating that their channel checks lead them to the conclusion that this law will not pass. Furthermore, Goldman stated that colder winter temperatures this year probably led to an increased number of traffic accidents, which would be bullish for LKQX because its parts would be used in the repairs.
These developments, along with an increase in consumers trying to save money by having their cars and trucks fixed as cheaply as possible would be great for a company like LKQ. The problem is its price. Even after its recent slide, LKQX currently has a P/E of just under 35, which is a little rich for me…especially in the current market environment. The company has been knocking the cover off the ball with earnings quarter after quarter though, so while I will not purchase shares of this company in real life if I can find a way to fit it in my overcrowded CAPS portfolio I probably will.
No position in LKQX