A Used-Car Portfolio To Profit From A Sluggish Economy

Motif Investing constantly looks for “trends, ideas and world events that could create an investment opportunity,” and then picks 10 to 30 related stocks to build portfolios around, weighing them based on their exposure to the coinciding idea, event or trend.

On of the motifs that has been delivering a strong performance, both over the past month and past year, is the Used Car Tune-up portfolio, which provides exposure to companies that profit from increased use of old cars. So, let’s take a closer look at this motif, which has returned 31.3 percent over the past year, and 6 percent in the past month, comfortably outperforming the S&P 500.

Source: MotifInvesting

Making Do With More Mileage

The people behind this motif explain why they thought of it. According to the site, the recession led to reduced consumer spending, and made credit harder to obtain. Consequently, new car sales fell, boosting the average age of cars in the U.S. The figure hit a record 11.4 years in 2012.

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As a result of this trend, “spending on car maintenance increased, and that helped companies that serve the aftermarket for replacement parts and services,” the site expounds. “Additionally, more consumers started fishing for deals on used cars. That increased sales of pre-owned vehicles by 4.4% from 2011 to 2012, while the average price of a used car (up to eight years old) increased 1.2%. All of which revs the engines of car dealers, who earn higher margins on used car sales vs. new cars.”

Allocation

So, without further a due, let’s look into the asset allocation of this motif.

• 65.4 percent of assets are allocated to auto parts retailers stocks
• 13.9 percent, to diversified auto parts stocks – mainly producers
• 13.5 percent, to car dealers
• 7.1 percent, to tires manufacturers

The top stock picks in terms of allocation are:

• AutoZone, Inc. AZO, 21.1 percent
• O'Reilly Automotive Inc ORLY, 17.5 percent
• Advance Auto Parts, Inc. AAP, 10.5 percent
• Monro Muffler Brake Inc MNRO, 9.6 percent
• Genuine Parts Company GPC, 9.3 percent
• CarMax, Inc KMX, 5.5 percent
• LKQ Corporation LKQ, 5.1 percent
• Cooper Tire & Rubber Co CTB, 4.0 percent
• Goodyear Tire & Rubber Co GT, 3.1 percent
• Dorman Products Inc. DORM, 2.7 percent
• Copart, Inc. CPRT, 2.3 percent