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Genuine Parts Company Message Board

  • web_rules web_rules Sep 20, 2000 2:27 PM Flag

    Current Prices

    At 19, there is a large margin of safety for
    anyone purchasing GPC shares. Although margins may be
    under some pressure, I don't beleive that the
    fundamentals of this business have changes or that the solid
    long term track record is about to end. Unless the
    dividend is cut (and there is almost no chance of that),
    the stock price is going to have trouble going much
    lower. But who knows for sure? The market is irrational
    on the upside and the downside.

    I'm long at
    an average cost of 20.25. If I didn't have a full
    position already, I would be buying heavily at these

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    • >>The most reliable indicator of value you
      have is the objective data of the numbers and
      greatest certainty you can obtain is in your own logical
      processing of that data.<<

      I understand your
      point. But there are times when I can see the issues in
      an industry that are depressing the stocks and feel
      fairly certain that I understand them well enough to
      draw some reliable conclusions about the future. I'm
      not at that point here. Maybe I am asking for too
      much, but that's my style. I put a lot of weight on

    • Web_Rules,

      The large margin of safety is
      dependent on a continuation of current earnings + growth of
      5+% or so going forward.

      Granted that Federal
      Mogul is an overleveraged basket case with a lot of
      issues, but they are missing badly this quarter partly
      because of continued problems in the domestic autoparts
      business. I have yet to hear of anyone that is making the
      case that it's a cyclical or temporary issue.

      Point being that if GPC continues to see its margins
      slip (something that I have no strong view on either
      way because I just started looking at this company
      and industry) then earnings could be flat or even
      down for awhile in the near future.

      A company
      like that may not be worth much more than 10x earnings
      as the ROC and ROE slowly declines.

      than debate the exact value - since that's mostly
      subjective and dependent on the model used, I wish someone
      would make the case that GPC is either immune to the
      current issues or that they are clearly temporary,

      If you can do that I'm going to back up the truck!

      But I think the surface cheapness, something that
      anyone can see, may be misleading or at risk if you are
      "just assuming" the growth will be there because it
      always has been in the past.

      To me it's a matter
      of whether it's cheap or very cheap. There's lots of
      cheap stocks out there so I'd rather focus on very

      • 2 Replies to wcrimi
      • The first thing I look at when evaluating margin
        of safety is the balance sheet. GPC's balance sheet
        has always been strong and should remain so.
        Comparisons to Federal Mogul are meaningless.

        Now, I'm
        willing to accept the hypothesis that demand for
        replacement parts may decline somewhat due to more reliable
        new cars. But the idea that replacement parts are
        somehow going to vanish seems absurd to me. In addition,
        the number of cars on the road increases each year
        along with population growth and increasing affluance
        (2 and 3 car households).

        It's rare to find
        quality companies trading at these multiples. The company
        has the track record, is well managed, and has an
        excellent balance sheet, AND a buy back program. Even if
        earnings only grow at the rate of nominal GDP growth over
        the next 10 years, this should be a very profitable
        investment. The dividend is very safe as well. While this
        stock isn't going to make me rich overnight, it also
        isn't going to be cut in half.

        If I hadn't
        backed up the truck at 20, I would be doing so now. I
        would say that the stock is very cheap, but that's just
        my humble opinion.

      • 1. GPC is diversified and thus complex. There is
        no reason why any one piece of this business should
        be immune to the risks its competitors face. Nor,
        however, is there any reason to believe that any loss in
        one sector will not be offset by a gain in another.
        If you are looking for qualitative certainty, you
        will not find it here. You are going to have to go
        with the math and from there only you know how risk
        averse you are.

        2. There are simple calculators
        out there that can be used to factor in various
        growth assumptions leading to desired returns. I use the
        intrinsic value calculator at Quicken.Com. For GPC if you
        want to protect yourself against zero growth forever
        then you need a price approaching $15. If you want to
        protect yourself against negative growth you would go
        lower than that. By these standards, GPC is only cheap
        -- not very cheap.

        3. A hardcore value
        player would say I want to own the company at 50% of
        what it is worth. If you say GPC is worth only that
        price that assumes no growth, then very cheap is half
        of $15 or about $7.50. A lot of companies sell at
        large discounts to book -- it is only my opinion that
        GPC will not.

        4. I say GPC may be worth 40 and
        half of that is 20 -- I see 1 maybe 2 GPC type deals
        in a year. I can either take that deal or I can stay
        in cash. If I take the deal I likly will double my
        money in 5 years for a 15% annual return. If I stay in
        cash I make whatever the FED says the rate for cash
        will be - something between 3-7% given recent history.
        For me the risk of remaining in cash overwhelms the
        risk that I may have factored in a small amount of
        historicaly supported maybe no longer relevant growth.

102.64Jul 28 4:02 PMEDT