Investment management company First Pacific Advisors recently released its “FPA Queens Road Small Cap Value Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, the fund returned 7.48% compared to a 10.15% return for the Russell 2000 Value Index. Year-to-date, the fund returned 8.1% compared to a 9.22% return for the index. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
FPA Queens Road Small Cap Value Fund highlighted stocks like Advance Auto Parts, Inc. (NYSE:AAP) in the third quarter 2024 investor letter. Based in Raleigh, North Carolina, Advance Auto Parts, Inc. (NYSE:AAP) is an automotive replacement parts and accessories provider. The one-month return of Advance Auto Parts, Inc. (NYSE:AAP) was 4.22%, and its shares lost 30.57% of their value over the last 52 weeks. On November 7, 2024, Advance Auto Parts, Inc. (NYSE:AAP) stock closed at $38.98 per share with a market capitalization of $2.326 billion.
FPA Queens Road Small Cap Value Fund stated the following regarding Advance Auto Parts, Inc. (NYSE:AAP) in its Q3 2024 investor letter:
“In the third quarter, we added a new position in Advance Auto Parts, Inc. (NYSE:AAP), an aftermarket automotive parts distributor and retailer that sells to both do-it-yourself consumers and professional repair shops. For now, AAP sits in our “opportunistic value” bucket of cheap companies that have known problems or are of only medium quality. AAP is in the middle of a major turnaround, a situation we usually avoid. Auto parts retailing can be a great business but under the previous management regime, operating and financial metrics significantly lagged competitors O’Reilly (ORLY) and Autozone (AZO).
CEO Shane O’Kelly joined in August 2023 from HD Supply, a well run building products distributor that was bought by Home Depot in 2020. O’Kelly’s expertise is badly needed as AAP redesigns its inventory management and supply chain. Additionally, AAP added significant depth to the Board including Tom Seboldt from O’Reilly, Gregory Smith who ran operations at Goodyear and then ran supply chain for Walmart, and Brett Windom who was CEO of Pep Boys. AAP also cured their balance sheet when they announced the sale of their WorldPac subsidiary for $1.5B on their Q2 2024 earnings call. For now, margins are near zero as the company rebuilds its business. As of September 30, 2024 we believe the company is very cheap at roughly 30% of sales if they can get their operating margins anywhere near the high single figure they achieved through 2022.
We think this turnaround is going to take at least a couple of years to play out. We bought some before Q2 results and then a little more after Q2 results sent the share price down more than 10%. The stock price has continued to drift lower since our purchases. Given the level of uncertainty here, we believe we have sized the position appropriately at roughly 1% of the Fund.”
A manufacturing facility floor filled with an array of automotive parts and accessories.
Advance Auto Parts, Inc. (NYSE:AAP) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 39 hedge fund portfolios held Advance Auto Parts, Inc. (NYSE:AAP) at the end of the second quarter which was 39 in the previous quarter. Advance Auto Parts, Inc.’s (NYSE:AAP) pro-business segment led to a positive 0.4% growth in comparable sales for the second quarter. While we acknowledge the potential of Advance Auto Parts, Inc. (NYSE:AAP) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI s
In another article, we discussed Advance Auto Parts, Inc. (NYSE:AAP) and shared the list of the best 52-week low stocks that pay dividends. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.