Auto after the great recession. While that may

Auto parts companies such as Advance Auto Parts, AutoZone and O’Reilly have been formany years very strong and reliable stocks to invest on. From 2013 to 2016, these stocks haveoffered great increases in value, mostly due to the decrease of people buying cars in the UnitedStates after the great recession. While that may seem a contradiction, people buying less cars, butmore auto parts, it is definitely not. That meant there were older cars on the road, which results inmore maintenance and parts needed. That caused a boom of need for automotive parts. Also, theauto parts industry seemed to be immune to the great domination of Amazon on most retail storesin the country, as said by Jim Cramer on “Mad Money”, the “Death Star” Amazon. That ismostly justified because it is much more practical for people who are in the cars already to juststop at an auto parts retailers to get what they need and get assist to install it, than to shop online,wait for it and install it alone. But in early 2017, these stocks started a huge downfall, and bynow, at the end of the year they have recovered very well. This downfall, was very intensifieddue to a great overreaction by the market.But why did these companies had such a bad period in the beginning of the year? Somepeople thought that Amazon was finally hurting their business strongly, or that it was because ofthe delay of federal tax refunds that caused people to spend less on their automobiles. But themain reason that the companies themselves concluded was because of a mild winter. Winter, andespecially snow increases the demand for auto parts. People need winter tires, antifreeze, tirechains and on these conditions car parts are much more likely to break, and consequently needreplacement. Without a strong winter, there was much less demand for car parts and products. Allthese problems together resulted in a huge downfall which was very overreacted. Prices overshotto record lows in years: AutoZone went from $789 to $491, Advance Auto Parts from $169 toKuperman Baratz !3$78 and O’Reilly from $278 to $169. As of December 18, the stock prices recovered to $703,$102 and $246 respectively, and they are still recovering and adjusting to fair prices. As Cramersaid “all these three stocks are fairly cheap”.This is a great example of overreaction of stock prices in the real world. The market veryfrequently overreact on many situations that happen in the world. In many cases prices overshootto record highs, as many believe the prices of Bitcoin is, or in some cases they overshoot to lowprices such as it happened with the auto parts companies. And good and also lucky investors,need to see when this situations happen, to try to take advantage of it and get good returns.


I'm Mary!

Would you like to get a custom essay? How about receiving a customized one?

Check it out