LKQ is the number-one supplier of recycled auto parts, thanks to a buyout of Keystone that closed Monday. Cramer is guessing the deal will force analysts to raise estimates and send this stock even higher.
Believe it or not, there’s a quiet bull market in auto junk, Cramer said, and LKQ is one part of it. Damaged cars get replacement parts from two places: the automakers and then companies like LKQ, which deal in refurbished, aftermarket and recycled parts. The market-share split is 70%/30%, respectively.
At least for now it is. The insurance companies that pay for post-accident repairs are becoming more and more cost conscious, so that should give LKQ a chance to take market share. This is Cramer’s reason to own the stock long term.
There’s a catalyst too. State Farm, the largest auto insurer, had stopped allowing aftermarket parts because of a class-action lawsuit filed against the company. But that lawsuit was thrown out, so LKQ could stand to benefit enormously now.
Cramer said LKQ should become a dominant player in the market as it rolls up smaller outfits through acquisitions. His risk-reward for the stock is four points down, 15 up, “the kind of risk/reward I dream about,” he said.
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