NEW DIRECTIONAL CALL PLAYS

Advance Auto Parts Inc. - AAP - close: 133.58 change: +1.31

Stop Loss: 129.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The average car on the road in the U.S. today is over 11 years old. Even though the pace of new car sales has been strong in 2014 there are large chunks of the consumer that are still struggling. Older cars mean higher demand for auto parts.

AAP is in the services sector. The company is one of the largest auto parts retailers in the nation. They recently bought General Parts International for $2.08 billion in a cash deal that closed early this year. That added 1,233 Carquest stores and 103 Worldpac branches.

AAP believes they will be able to achieve about $190 million in synergies over the next three years. Analysts believe that AAP, now even bigger, will be able to negotiate better prices with wholesalers and rev up its supply-chain efficiencies.

The company delivered strong gains in the first quarter in spite of the lousy weather. That's a feat many retailers failed to accomplish with same-store sales up +4%. The company is also seeing improvement in its gross margins.

While the U.S. economy is slowly improving we are not seeing significant wage inflation. Consumers are still looking for bargains. That means more older cars on the road and more consumers buying auto parts to keep their older cars running.

IHS Automotive said the average age of light vehicles is currently 11.4 years. This includes cars, SUVs and light trucks. That's the average. This is expected to rise to 11.5 years by 2015 and 11.7 years by 2019. Older cars require more maintenance and more replacement parts. This is a strong tailwind for AAP.

AAP's recent breakout past resistance at $130.00 is bullish. The recent pullback looks like a buying opportunity. However, I'd like to see some follow through on today's bounce. Yesterday's intraday high was $133.99. I am suggesting a trigger to buy calls at $134.25.

FYI: We are not setting an exit target tonight but the Point & Figure chart for AAP is bullish with a $154.00 target.

Trigger @ $134.25

- Suggested Positions -

Buy the Sep $140 call (AAP140920C140) current ask $3.60

Option Format: symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:

Entry on July -- at $---.--
Average Daily Volume = 818 thousand
Listed on July 09, 2014