Why these auto stocks may pass-through inflation

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi discuss how auto parts stocks may pass-through inflation.

Video Transcript

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JULIE HYMAN: We've talked a lot about inflation on the show. Mr. Sozzi today in his take is talking about one area there might be some pricing power, even amidst the increased input costs that we're seeing. What are the good folks at Goldman telling us this is a good area to look?

BRIAN SOZZI: Well, you know me, Julie and Myles, I'm always looking for potential inflation busting investments for our viewers around the world. And here I came across a really good Goldman Sachs noting why investors should take a look and do their research on auto parts retailers. First, Goldman noting here, and they put out a good chart, looking at miles driven in the country.

So, the total number of miles driven by drivers is now starting to pick up as they get their COVID-19 vaccine. You see there in that chart, that trend is starting to improve, and what does that mean? More miles driven on the road as you come out of hibernation, whether going to a restaurant, you name it, maybe you blow a tire, maybe you get a new scratch in your car, maybe you just get into a minor fender bender.

What that means is you'll probably have to go to the likes of Advanced Auto Parts, General Parts company, or O'Reilly, and pick up new stuff to fix your broken down car. And that goes to the second point here in this Goldman Sachs note here, guys, that, really, these companies are best placed to pass through price inflation. If you have a broken down car, a flat tire, you need the new stuff or you cannot get back on the roads.

You're going to pay whatever you need, whether it's cash, whether it's in crypto, you name it, put it on your credit card, you need to get your car back on the road. And that's why these companies, at least for right now, could have pricing power. The best stock at all this, at least according to Goldman Sachs, might be Advanced Auto Parts. And the fine folks at Goldman doing the always cool, double upgrade on Advanced Auto Parts to buy from cell, which is another way of saying, hey, we were really wrong in the stock, it's up about 10% to 15% to 20%.

We were really wrong, but we're going to try to catch another 20% on the upside and look very right. So, let me just drop a buy rating on it. Advanced Auto Parts looks like the potential winner here.

JULIE HYMAN: Yeah, we'll see if they're right this time around though, timing wise. And we'll also see, I mean, it's a good thought exercise to think about these other areas of the economy that might be seeing increased input costs, but that people don't really have a choice in the matter. That they need the various things, like things like auto parts if your car breaks down for various reasons.