A sell-side firm recently rated Advance Auto Parts (AAP) and AutoZone (AZO) new buys. Let's check under the hood of these two companies, as well as fellow auto supply company O'Reilly Automotive (ORLY) , to see if this is a good place to invest.
An Advance Look
In the daily bar chart of AAP, below, we can see that the shares declined from January to a recent low in June. AAP trades below the declining 50-day moving average line as well as the declining 200-day line.
The On-Balance-Volume (OBV) line has been stable since making a low in March. This is a positive sign. The 12-day price momentum study shows equal lows in May and June and this is a category of bullish divergences when compared to the weak price action.
In this daily Point and Figure chart of AAP, below, we can see a potential downside price target in the $138 area. A trade at $194 may be needed to improve this chart.
Get in the Zone?
In this daily bar chart of AZO, below, we can see that prices have been in an uptrend the past 12 months. The shares tested and temporarily broke the rising 200-day moving average line in May. Prices are now back above both the 50-day and the 200-day averages.
The daily On-Balance-Volume (OBV) line shows a fresh rise from early March as buyers of AZO have been more aggressive. The MACD oscillator is above the zero line.
In this daily Point and Figure chart of AZO, below, we can see that the software projects a downside target in the $1,781 area.
Oh, Oh, Oh O'Reilly
In the daily bar chart of ORLY, below, we can see that the shares were in an uptrend until a gap to the downside in late April. Prices broke below the 200-day average line and rallies so far to the underside of the line have failed.
The OBV line continues to point higher and is a bullish divergence when compared to the price action. The MACD oscillator shows improvement from May but is still below the zero line.
In this daily Point and Figure chart of ORLY, below, we can see an upside price target in the $664 area.
Bottom-Line Strategy
So we have three auto parts companies and two are recommended by a fundamental analyst. The charts of AAP and AZO are not particularly compelling, in my opinion. I prefer the long side of ORLY at this point in time. Risk below $560.
