Tuning Up Your Portfolio: Part 1

U.S. car owners are driving their vehicles a lot longer than they used to, and it’s not just because of this tough economy. Cramer said aftermarket parts-seller O’Reilly Automotive is a play on this trend.

Cars are better built these days, so consumers are getting more mileage out of them. Here’s some proof: 41.3% of all cars were 11 years or older, a consulting firm reported last February, compared to 40.9% last year. And the median age for a passenger car is now 9.2 years versus 8.3 back in 1998. That means the need for repairs, tune-ups and replacement parts is growing.

Not that this bad market, with its less available credit, isn’t putting a hurt on the auto dealers. People aren’t buying new cars or leasing them. In fact, companies like General Motors and Ford and lenders like JPMorgan Chase and Wells Fargo are either increasing their lease payments or turning their back on the business altogether.

But the bottom line here is that a company like O’Reilly is in a good position to capitalize on budget-conscious consumers and their well-made cars. (Note: Auto-parts sellers that deal with manufacturers are toxic, Cramer said. Don’t confuse O’Reilly’s business with them.) Especially considering there’s about $60 billion of unperformed auto maintenance waiting to be earned, Cramer said. Plus, this industry is consolidating, and ORLY but made a buy that should add a lot of growth to the company.

O’Reilly picked up CSK Auto, making the combined company the third-largest auto parts retailer. And the deal is expected to save ORLY as much as $100 million. Then there’s the regional growth CSK offers. O’Reilly’s base in the Midwest and Southeast now expands into the West, home of CSK. And O’Reilly can start to sell its parts to professional mechanics instead of just the do-it-yourself crowd that CSK caters to.

O’Reilly cut guidance after the latest quarter, but the stock rallied anyway. Apparently, the Street was expecting worse. Regardless, trading at 14 times earnings with a 16% long-term growth rate, ORLY is the cheapest stock in its sector based on growth, Cramer said. He thinks the stock could go to $35 from $28.

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