By Jack Hough
I'm not one for vehicular envy, but while traveling a few weeks back, I couldn't help but admire another man's rickety Nissan Altima. It was an Uber or Lyft, and I had skipped the XL option to save a few minutes, so I was crammed into the back like a Shriner in a mini-kart parade. My head was tilted at an angle that brought the odometer into view, so I squinted: It was about to hit a half-million.
I didn't know they went that high. After many years of treating myself to newer vehicles, I'm sitting at 70,000 and 40,000 on my current ones, and having seen the prices at the dealership, I'm thinking about settling down. I figured a quarter-million miles was an outside chance, but my run-in with Tightsqueeze McHalfmill has given me confidence.
I'm not nearly alone in my new interest in automotive longevity. The average age of cars on U.S. roads has hit 13, versus under six in 1970. Better build quality and rust proofing had helped raise it to nine by 2000. Since then, the high-miles club has expanded through economic effects, including the recession of 2008-09 and pandemic shortages and hot inflation since 2020. Lately, car makers have abandoned cheap models and gone all in on loaded pickup trucks and luxury sport-utility vehicles, so average dealership prices have topped $50,000. Insurance costs are way up, too.
All of this makes now a good time to be in the auto-parts business. Sales for AutoZone have expanded from $12.6 billion in the fiscal year ended in August 2020 to an estimated $20.5 billion this fiscal year. O'Reilly Automotive has seen similar growth, from $11.6 billion to an estimated $19.1 billion. And the shares have done well, with 150% returns over five years for O'Reilly and 114% for AutoZone, versus 93% for the S&P 500 index. But that includes a 12% drop for O'Reilly over the past six months, and 24% for AutoZone.
That's an opportunity to buy the dip, especially in AutoZone, says D.A. Davidson analyst Michael Baker. "There is a little bit of a disassociation between how the company's doing and how the stock is doing," he says.
This past week, AutoZone reported that same-store sales grew 4.1% in the quarter ended on May 9, an acceleration from 3.4% the quarter before. But Wall Street had predicted 4.7% growth. A miss is bad, but two other things were worse. O'Reilly and another chain, Advance Auto Parts, beat estimates, so AutoZone was the lone donkey. And its results were weaker at the end of the quarter than the start. Shares lost 11% over two days.
Investors are nervous that some recent boosts to the car-parts business are waning. A crummy winter brought plenty of potholes and repairs. Bigger tax refunds helped spending. And there was high inflation for parts, which tends to get passed straight through to customers, whether do-it-yourselfers or mechanics, and fuels sales growth.
But broadly, AutoZone's report had plenty of good news, including the best two-year growth, operating profit, and margin in years. In recent quarters, the stock had sold off on concerns about rising overhead, which can mean that a retailer is opening stores too quickly. But overhead grew less than sales last quarter, a sign that new stores are starting to mature and could soon deliver better results. The stores also double as distribution centers for parts going to professional garages, which is about a third of AutoZone's business, and growing faster than the rest.
Earnings estimates for AutoZone have risen in recent months, as the stock price has fallen, leaving the forward price/earnings ratio at 17.5, compared with a five-year average of 19.2. Wall Street sees double-digit earnings gains in the fiscal years ahead. Baker at Davidson predicts a 27% rebound for the stock.
AutoZone might also have gotten caught on the wrong side of a sweeping risk-on trade. Stocks like Walmart and Costco Wholesale have stumbled in recent weeks, while consumer-discretionary names have done better. But the real action has been in chips. Micron Technology was $420 a share and already up hugely in mid-April when I pointed out here that it was actually the cheapest stock in America relative to earnings. It was about $540 at the start of May, when I described why bulls say Micron is less subject to boom-bust dynamics than it used to be. Now the stock is over $900, and Micron this past week passed a trillion-dollar market value.
Frothy? I guess we'll find out together. Speaking of which, a year and a half ago in this space I wrote a guide to pretending to understand quantum computing. I used words like qubit, superposition, Schrödinger, and cat, some of them perhaps even correctly. I also mentioned an exchange-trade fund called Defiance Quantum, which is up 107% since then, versus 27% for the S&P 500. Most of the action has been in the past month.
See, there's a hot new stockpicker on the scene called the White House. It has taken equity stakes, warrants, and other upside participation across rare earth metals, defense companies, and chips. Its Intel profits alone would make Gordon Gekko hang up his suspenders. Now the government is going in big on quantum computing, using the Chips Act as something of a hedge fund. And that has momentum traders going cuckoo for qubits.
I'm not sure which stage of the market cycle that puts us in. Maybe we've slipped into a quantum superposition where gains are both reasonable and insane simultaneously. If my knowledge of pretending to understand this stuff serves, portfolios should be fine, as long as we don't look.
Write to Jack Hough at jack.hough@barrons.com
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May 29, 2026 14:49 ET (18:49 GMT)
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