Auto Wreck Scatters Car Parts Everywhere (GPC)

Genuine Parts Company (NYSE:GPC) is best known in the investment world for its dividend payout record.

The company has an unbroken, 66 year history of raising its shareholder remittance at least once every twelve months.

And that’s impressive.

At the same time, stocks don’t drive one way northbound forever.

And it looks to us like GPC’s latest 30% run higher – in just three months – is overheated.

Like a ’69 GTO With the Ram Air II Package!

Anyway, for all of GPC’s hydraulics, pneumatics, hoses and gaskets, this Atlanta, Georgia outfit’s race has now been run.

Look at the fundamentals –

• P/E is relatively normal (for this market) at 20.35,
• Dividend Yield is 2.26,
• Price to Book is a burning 6.11 (!), and
• Analysts are expecting five year growth of just 4.60% per annum.

Bottom line is the stock began making moves this year when the prospect of buying a new car took a back seat to holding on to the old jalopy, because no one had any money.

Going forward, though, prospects are devilishly flat.

• Supply chain issues,
• Chip shortages,
• Higher operating costs, and
• Increasing commodity prices

are all taking a bite out of earnings.

And that’s not likely to change soon.

Now look at the chart –

Technically, we see –

1. An overbought RSI indication in mid-August (circled, in red), that led to…
2. Negative divergence against price from both RSI and MACD (green arrows).  That’s an indication of a momentum shift, from bull to bear.
3. RSI is now sub-waterline, and MACD will confirm in the coming days.  At that point additional technical selling should ensue.
4. The weekly chart (not seen here) presents a bearish engulfing pattern as of last week.  Weekly iterations of this pattern are even more reliable than their daily counterparts.  They signify an almost certain top.
5. Price-wise, we have a three month trendline breaking last week (in red) coinciding with a volume surge at the top (in black).  Both of these items strongly suggest an intermediate term pivot.
6. Price is now below the short-term moving average, which appears to be offering significant overhead resistance (in blue).
7. A simple Fibonacci calculation sees potential support at 150, first, then 142.

And it’s to those levels that we’ve geared our trade.

Have a gander –

A Jew and His Gold recommends you consider selling the GPC December 16^th 150/155 CALL spread* for a credit of $2.20 (11.30/9.10) and buying the GPC December 16^th 150/145 PUT spread** for $2.60 (6.10/3.50).  Total debit on the affair is $0.40.

[*Sell the 150 CALL and buy the 155 CALL.   **Buy the 150 PUT and sell the 145 PUT.]

Rationale: $0.40 buys us a chance at a $4.60 payday, which is perfectly acceptable (1150%).

Max downside is $5.40 (difference between the CALL strikes plus the initial debit).

Breakeven hits at $149.60, a 3.8% decline from the current price.

And the full sweepstakes are pocketed with a decline of 6.8%.

And we have nearly three months to get there.

And a nasty election on the way.

And the FED.

And climate change lockdowns.

And inflation.

And civil strife.

And who knows what the hell else…

In other words, book it.

And may the Good Lord keep you and yours safe from the evil that’s mushrooming all about us.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew