Genuine Parts Should Be Recession Proof In The Next Downturn

Includes: EPRO, GPC
by: Roger Nusbaum

Yesterday we executed a trade for most large accounts and RRGR in buying Genuine Parts (NYSE:GPC). Depending on the client we are targeting a 2-3% weighting. The idea was pretty simple: we increased equity exposure, added some yield and this is a name I would expect we would be able to hold onto in the face of a downturn if the end of the cycle comes in 2013 or 2014 as I think will be the case.

The company’s biggest division sells auto parts - you probably know the name NAPA Auto Parts. There a couple of other divisions including industrial components and oddly an office supply division that, although only a sliver of the business, I wouldn’t mind seeing them sell. There is very little debt and the company has been raising its dividend since the pilgrims landed (slight exaggeration).

If my long running theme of generally reduced price appreciation in domestic indexes holds up, then increasing the yield of the portfolio becomes important. As a note I don’t believe in owning dividend payers exclusively as that would exclude certain market segments and make for weaker diversification.

One other thing to circle back to is the comment on index price appreciation or lack thereof. Net net there has been very little progress in the indexes for many years. The SPX is currently at a level first hit in December 1999. In the last few years there have been some great trading opportunities but progress for investors has been tough to come by although with some luck in country selection (and avoidance) and domestic sector avoidance, portfolios could have performed decently in the last ten years.

Disclosure: Long GPC. I am the manager of the AdvisorShares Global Alpha & Beta ETF (RRGR).