Research Report ►(comments)

Advance Auto Parts, Inc., based in Roanoke, Virginia, is a specialty retailer of automotive parts, accessories, and maintenance items for the consumer automotive industry. The company offers replacement parts, accessories, and chemicals for civilians who can choose to take advantage of Advance Auto Parts' service or perform installations and maintenence themselves. Advance Auto Parts, Inc. is divided into two primary divisions: Advance Auto Parts (AAP) and AI. The AAP division operates 3,153 stores within the United States, Puerto Rico, and the Virgin Islands and offers a range of automotive parts including batteries, belts, brake pads, alternators, oil and transmission fluid, and other replacement and maintenance items. This division operates under the names Advance Auto Parts, Advance Discount Auto Parts, and Western Auto (2007). The AI segment operates under the name Autopart International and provides parts for the commercial automotive market, including third-party distributors and jobbers. As of 2007, this division operated 108 stores in North America.

Investment Impacts (help)

USA Country Analysis ► (edit / improve) The United States (US) has a highly productive, capitalist economy and is the largest and most diverse market in the world. Currency: the US dollar (USD) has the potential to increase in value especially versus the Australian and Canadian dollar because of the significant potential of undervalued companies. Investor Survey: the economic environment is very favorable for long term economic growth due to high scores on economic freedom and economic diversity. Trade: China, Japan, Mexico, and Canada are the top US trading partners, while the leading export and import are electrical machinery and vehicles, respectively. Commodity: The US produces a significant amount of coal and wheat for use at home and as an export. However, the US consumes a larger amount of oil, which contributes to their trade deficit. SWOT Analysis: The leading US strength is its entrepreneurial culture, while the main weakness is high health care cost. Energy independence has the opportunity to propel growth, while the major threat is the housing crisis, which will lower growth. Trading Strategy: An undervalued currency, high investment flow potential and favorable business environment lead to a positive outlook for US investments, which will also benefit from positive international actions.

Commodity Investment Impact

Crude Oil Commodity Analysis ► (edit / improve) Crude oil is used to produce fuel oil and gasoline. Gasoline is the largest supplier of fuel for internal combustion engines. Commodity: Crude oil is rated a Sell. Crude oil demanders have a moderate potential to increase in value and crude oil suppliers have a very high potential to increase in value. Investor Survey: Crude oil’s long term growth potential is very favorable due to high scores on sensitivity to price changes, demand not sensitive to price changes, and the SWOT analysis. SWOT Analysis: Strength: Limited natural resource / supply; Weakness: Emits carbon dioxide. Opportunity to grow: the overall growth of vehicles will increase demand for crude oil; Threats to growth: environmental concerns could slow growth potential in the near term. Trading Strategy: The commodity analysis sell rating indicates that crude oil prices should decrease over the short term, whereas a very favorable investor survey means crude oil prices increase over the long term.

Gasoline Commodity Analysis ► (edit / improve) Gasoline is primarily used as a fuel for internal combustion engines. It is a significant source of carbon dioxide. Commodity: Gasoline is rated a Sell. Gasoline demanders have a potential to increase in value, while gasoline suppliers have very high potential to increase. Investor Survey: Gasoline’s long term growth potential is very favorable due to high scores on sensitivity to price changes and lack of good substitutes. SWOT Analysis: Strength: Gasoline is a limited natural resource; Weakness: gasoline produces considerable pollution. Opportunity to grow: Gasoline’s use increases with increases in cars; Threats to growth: environmental friendly awareness may curb the growth of gasoline. Trading Strategy: The commodity analysis sell rating indicates that gasoline should decrease in price over the short term, whereas a very favorable investor survey means gasoline should increase in price over the long term.

Discretionary Industry Analysis ► (edit / improve)

Description: The consumer discretionary stocks include companies whose sales come from consumer discretionary income purchases. Discretionary income = gross income less taxes and necessities such as rent, mortgage and food. Read More.

Profit Analysis: The best way to profit from discretionary stock investments is to find the most undervalued investments (Wall Street and Main Street buy ratings) during economic recessions. Those investments should be undervalued (see Wall Street on left side), and have high Main Street Common Sense investment ratings (see Main Street on right side). When an economic recovery occurs, discretionary stocks tend to outperform the general stock market, because consumers quickly resume spending on items they wanted, but resisted buying during tougher economic times. Eventually those investments become overvalued, because profits and stock prices increase past their fair values. In other words, the margin of safety becomes low or negative. During the last stages of an economic business cycle, just before a recession, it is best to sell discretionary stocks, because they are likely to decrease in price the fastest. Selling a stock investment is difficult to do properly. Expensive (overvalued) stocks with low Main Street Common Sense ratings should be sold at any time to invest in better stocks. Two buys ratings are the best and two sell ratings are the worst possible stock investments. As a general rule, the larger the investment potential (margin of safety), the safer the investment.

Trading Strategy: During economic recessions, consumers tend to cut back on discretionary expenses to save money. Less spending by consumers eventually decreases business revenue and stock prices. During economic recoveries, consumers have more discretionary income, so spending quickly increases. Higher spending increases business revenue and eventually increases stock prices. During long economic expansions, discretionary income increase, but at a slower pace than during the initial economic recovery stage.

¹ Investment potential (margin of safety) is a weighted average of the discounted cash flow (DCF), the enterprise value (EV) market multiple, and the Warren Buffett investment methods.
² The weighted average cost of capital (WACC) for the industry is a broad representation of the WACC for each individual company. A sub-industry WACC offers both stability and accuracy for each individual company.

SWOT Analysis - Advance Auto Parts ► Add Your Input Below

WACC Discount Rate Analysis - Advance Auto Parts ► Experiment with AAP's Analysis ►

Discounted Cash Flow Analysis - Advance Auto Parts ► Experiment with AAP's Analysis ►

Comparative Value Multiple Analysis - Advance Auto Parts ► Experiment with AAP's Analysis ►

Warren Buffett Intrinsic Value Analysis - Advance Auto Parts ► Experiment with AAP's Analysis ►

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