Planes, Trains and Automobiles

Actually, this is more about “Cars and RVs,” but you get the point.

Ever since Henry Ford brought automobiles to the masses, we’ve grown accustomed to the luxury of freedom through mobility. We cherish our wheels. We name them. Mine’s called “Sandy,” for her tan color and propensity to collect the piles of sand I drag in from regular trips to the beach.

Our wheels are our freedom. They’re our escape route… our vessel for traveling and exploring.

Our vehicles are also money pits. You know this. Rodney knows this. And soon, Rodney’s son will learnrn this.

Despite being an annoying drain on our financial resources, Americans continue to buy, maintain and repair personal vehicles. This includes everyday vehicles – the ones that get us to work and to the grocery store – and recreational vehicles, or RVs, which provide roomier comforts that allow for longer trips.

I was recently reading some reports on the RV market. You may know, I recommended an RV play to Boom & Bust subscribers in late May and we’re already up more than 30% in this stock alone! But I digress…

What caught my eye, while reading about the RV market, is how one analyst called RV purchases “purely discretionary,” meaning, they’re a pure luxury purchase. Wanted, perhaps, but never needed.

I agree with this statement, in the strictest sense. But it really got me thinking…

Second vacation homes are also purely discretionary. So are month-long European vacations. And cruises.

Yet, despite the fact that none of these expenses are necessary, few Americans fully abstain from a healthy dose of fun and discretionary spending now and again. That’s regardless of how tight their budget happens to be.

I suspect, in the aftermath of the financial crisis, consumers still make discretionary purchases, but they’re making what I’ll call “ratchet down” discretionary purchases. I’m talking RVs instead of beachfront second homes, or American road-trip style vacations instead of world tours, or coach bags instead of Pradas.

And, rather than buying or leasing a brand-new car every three years… ratchet-down consumers opt to maintain and repair older models a bit longer. That’s put auto parts retailers in prime position to benefit from consumers’ move away from exuberant excess. As long as car owners are pinching pennies, these shops stand to do well.

That’s why our chart today compares the two largest auto parts stores – AutoZone (AZO) and O’Reilly (ORLY) – to the S&P 500 (going back to January 2009)…

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As you can see, the returnrns those parts companies generated are massive compared to the broad market; three to four times greater. AutoZone (AZO) is up nearly 220% in four and a half years. O’Reilly is up nearly 300% in the same time.

So, sure, RVs are discretionary. So too are cars. But that doesn’t mean that during tight economic times, people simply stop all their discretionary spending. It pays to dig a little deeper. Consider how consumers are ratcheting down, how they’re spending less money on some things to still enjoy their discretionary items. That’s how you’ll see which trends should be the most profitable moving forward.

Is the RV market poised to be the next 300% gainer? We think so.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.