Appalaches Capital, an investment management firm, released its third-quarter 2024, investor letter. A copy of the letter can be downloaded here. Appalaches Core LO ended the quarter with a 3.0% gain after all fees and expenses compared to the S&P 500’s return of 5.9%, the equal-weighted S&P 500’s return of 9.6%, and the SOFR Index return of 1.4%. The fund has achieved a net return of 7.1%, year-to-date. During the quarter, the firm made several changes to the portfolio, with about two-thirds now allocated to risk assets, aligning better with a normalized allocation, and planning to invest idle cash as opportunities arise in companies with strong competitive positions. The firm aims to buy shares at a discount to their intrinsic value, but this has been more challenging over the past year. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Appalaches Capital highlighted stocks like AutoZone, Inc. (NYSE:AZO) in the third quarter 2024 investor letter. AutoZone, Inc. (NYSE:AZO) is a retailer of automotive replacement parts and accessories. The one-month return of AutoZone, Inc. (NYSE:AZO) was 4.90%, and its shares gained 19.95% of their value over the last 52 weeks. On November 29, 2024, AutoZone, Inc. (NYSE:AZO) stock closed at $3,169.54 per share with a market capitalization of $54.186 billion.
Appalaches Capital stated the following regarding AutoZone, Inc. (NYSE:AZO) in its Q3 2024 investor letter:
“Passing on cost structure benefits, sometimes called “Shared Economies of Scale,” is not the only form of these positive feedback loops. AutoZone, Inc.’s (NYSE:AZO) moat also deepens as it grows. While most would think of the company as a very good retailer, I would say that the business model is more nuanced than that. The automotive aftermarket is a highly fragmented and specialized industry. There are hundreds of companies producing automotive components, most of which are specific to one of thousands of vehicle models. In 2022, there were over 280 million registered vehicles in the U.S., further adding to the fragmented nature of the value chain.8 Outside of large metropolitan areas with public transportation, people rely heavily on their vehicles in all facets of their daily lives. Not having a working car poses significant problems. Whether it’s getting to work or shopping for groceries, if something breaks on your vehicle, you need it fixed immediately.
The combination of all of these factors leads AutoZone to maintain a large and diverse inventory that is ready on a moment’s notice. Manufacturers and vendors cannot sell directly to consumers because it would take too long for the product to arrive, and it would not be economical to build out their own distribution network given the low turnover of the inventory. AutoZone is heavily relied upon by their suppliers, and as a result, their suppliers give them very favorable payment terms allowing them to stock more inventory while tying up less working capital. The creditors of these suppliers additionally acknowledge the prowess of AutoZone, providing more flexible credit to suppliers if their inventory is sent to AutoZone. With more inventory, they can better meet the needs of their customers, resulting in higher sales and a more efficient network of stores, which in turn leads to a more effective service for suppliers. This is a very effective flywheel. AutoZone is not new to the portfolio, but I do enjoy writing about it.”
A technician in a mechanic’s uniform replacing an A/C compressor, signifying the company’s automotive replacement parts business.
AutoZone, Inc. (NYSE:AZO) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held AutoZone, Inc. (NYSE:AZO) at the end of the third quarter which was 45 in the previous quarter. AutoZone, Inc.’s (NYSE:AZO) total sales in the fiscal fourth quarter were over $6.2 billion was up 9% year-over-year. While we acknowledge the potential of AutoZone, Inc. (NYSE:AZO) 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 stock.
In another article, we discussed AutoZone, Inc. (NYSE:AZO) and shared the list of stocks to buy before they split next. 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.