Source: U.S. Census Bureau, Durable Goods Report

This article is a reprint of my 31 July 2008 RealMoney column.

On July 23, J.D. Power & Associates cut its 2008 forecast for new light-vehicle sales and said it now expects U.S. sales to hit a 15-year low this year. The new estimate calls for 750,000 fewer cars to be sold than had been estimated as recently as March.

I’m sure that high gas prices are encouraging marginally more use of alternatives such as car-pooling or public transportation, but I also know from experience that those options are not always viable even if desired. Commuting and work schedules vary widely, so finding someone going your way at the time you need is often all but impossible. So I read the decline in new vehicle sales as a different kind of cost-cutting — namely, keeping a perfectly good older vehicle for a little longer. In other words, the average age of a U.S. vehicle is likely to increase somewhat from the current 9.2 years. And, of course, an aging vehicle requires more repairs. Even cost-conscious consumers may decide it is worthwhile to get the car tuned up and eke out an extra mile per gallon. That, in turn, should benefit companies such as Advance Auto Parts (AAP) , Autozone (AZO) and Genuine Parts (CPC) . Of the three, I believe Advance Auto Parts is best positioned for gains.

Advance Notice

Advance is the second-largest specialty retailer of automotive parts, accessories and maintenance items to “do-it-yourself,” or DIY, and “do-it-for-me,” or DIFM, customers in the U.S. Its stores carry a standard 16,000 stock-keeping units, or SKUs, on hand and can access another 80,000 for overnight delivery. In other words, if you need a part, Advance can get it for you. The company reports earnings on Aug. 7 and is expected to earn 72 cents a share for the quarter, though that really seems to be just a guess. Advance seems to alternate between missing estimates in one quarter and beating the next.

The full-year numbers should be more reliable, however, and on that basis Advance Auto is expected to earn $2.66 in 2008 and $2.92 in 2009. Both of those estimates have been revised higher over the last 90 days. The revisions, which are in the 3% range, compare favorably with a 1% increase in estimates for Autozone over the same time period and shrinking estimates at General Parts.

At 15.6 times the current-year earnings estimate, Advance Auto Parts is trading at the low end of its five-year valuation range (its average P/E has been 18.4 times). If the company earns $2.92 per share next year, as expected, and trades at that average P/E, the shares could appreciate by 30%, to $54.

Click here for larger image.

Source: Zacks Research Wizard, compiled by William A. Trent

Given that Advance has been improving its returns on capital, I believe that, if anything, it now merits an above-average earnings multiple. For one thing, the rising returns on investment lead me to believe that the 13.7% consensus three-to-five-year earnings growth forecast is, if anything, conservative. If the growth forecasts are realized, however, and the company returns to its average P/E after five years, the shares could reach $93, for total annual returns of 17.5%.

At the time of publication, Trent had no positions in stocks mentioned, although positions may change at any time.

Zacks Investment Research has provided Stock Market Beat with a complimentary trial subscription to Research Wizard.

In “Bill Miller’s Broken Legg,” what company did Jim Cramer call “an American comeback story”?

ArvinMeritor (ARM) is an “American comeback story,” Cramer said, as is Lear (LEA) and BorgWarner

 (BWA)

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

My latest post is up at RealMoney.

In it, I extend yesterday’s observations about the hidden strength in durable goods orders to specific industries that might benefit. Among those industries were primary metals, computers and electronic products, and motor vehicles and parts.

These industries may prove to be a good starting point for further research.

I decided to take a look at what some of the largest companies by revenue are saying about their business.

All looks well at General Electric (GE - Annual Report).

The second quarter orders were a record, up 32%; we grew our backlog. We’ve got very strong global demand, up 21% in revenue. We continue our focus on margin expansion. Year-to-date we’re up 120 basis points; we’re up 70 basis points for the quarter. This is a big initiative inside the company, and one that we’re committed to….

Globalization and emerging markets, GE is very advantaged in these markets and these are just booming right now.

Infrastructure continues to be a real solid point for the company. Demographics as it pertains to both global growth and some of the action in GE Money is great. All of our focus on ecomagination, energy and investment/reinvestment is very solid.

If you look at what’s the same, we still see high liquidity in the marketplace. The U.S. consumer seems fine. Unemployment is at low levels, and we’re not seeing really any warning signs with the U.S. consumer….

On balance, we think we’re well-positioned in this environment. There’s no big surprises, and we feel like we’re in good shape as we look at the rest of the year.

(Excerpt from full GE conference call transcript)

Exxon Mobil (XOM - Annual Report) describes several reasons why investing in new projects can be risky, which helps explain why they haven’t invested as much as some would like (and why prices for oil are likely to remain high.)

Although increased volumes from the recent project start-ups in Russia, West Africa, and Qatar more than offset natural field decline, liquids production fell by 34,000 barrels per day, or 1% from the same quarter last year due to entitlement and OPEC quota effects in Africa….

ExxonMobile’s affiliate in Venezuela was not able to reach the agreement on the formation of a mixed enterprise and on June 27, 2007, the government took over our interest in the Serene rural project….

(Excerpt from full XOM conference call transcript)

And they didn’t even get to hurricanes, Iran, Iraq or terrorism. Makes you want to run out and drill an exploratory well, doesn’t it?

General Motors (GM) hopes to build a house of BRIC:

It was actually a very good quarter for other regions. Strong growth outside North America in the quarter, adjusted profitability of close to $700 million, $1.1 billion year-to-date. Revenue up 16%, share up 0.2%. I remind you our revenue does not include our business in China, as we carry it on the equity method so you would not see the growth in our business in China showing up in revenue. So this is really only on a consolidated basis.

Europe reported its best quarterly results since the second quarter of 1996, strong structural cost performance and favorable pricing. LAAM continues to leverage, it can only be termed explosive growth, reported the best quarter in ten years in both revenue and profitability. GMH reported a record second quarter adjusted net income with continued growth in China, India, and South Korea, as well as some improved performance in Australia….

Russia is a very fast-growing emerging market. 2.5 million units. It’s actually fast approaching one of the largest markets in Europe, actually, getting very close to France, Spain, Italy in terms of its size; and the U.K., as you can see. Our market share is up almost 4 points in Russia year-to-date.

Actually, we’re running behind in Brazil, we’re trailing in terms of market share in Brazil, but the driver of that is the market is up 50% in terms of its SAAR in the quarter. I would say the challenge in LAAM today is to keep up with the markets growth….

China, you can see the SAAR is up from 6.7 million to 8.3 million units. Our market share has not kept pace, so we’ve had some competitive pressures there, but nonetheless we’re still running pretty strong in China.

(Excerpt from full GM conference call transcript)

However, as if they needed any more challenges, they have subprime exposure that needs to be worked off.

ResCap lost over $900 million in the first quarter. We said that in the second quarter we expected that losses would narrow considerably and we expected better results. We did see that. Nonetheless, the $254 million is still a substantial challenge, it’s the largest business challenge for the GMAC management team in terms of restoring that business to where it needs to be. But it’s good to see the declining losses. We have sharply reduced our non-prime production, our non-prime exposure across warehouse lending, across some of our builder businesses. You saw run-off in the non-prime portfolio held for investment. We expect our run-off in the held for investment portfolio to be about $15 billion this year. So we’re basically reducing our exposure to non-prime and at the same time, we are seeing increased service fee income and lower structural costs.

So I would say the challenges continue here, but the first step in addressing the challenges is to stop deteriorating.

(Excerpt from full GM conference call transcript)

Citigroup (C - Annual Report) is also feeling the heat.

Net credit losses were up by $259 million, driven primarily by our global consumer business.

In consumer, key drivers are higher balances from organic portfolio growth and acquisitions; continued deterioration in the second mortgage portfolio; and the impact of the gray zone in Japan. In markets and banking, we continued to see a stable credit environment.

The third component is a $465 million net increase in the loan-loss reserve. There were two major drivers of this increase. First in the U.S. Cards business, the increase was driven by a change in the estimate of loan losses that are inherent in the portfolio. It is important to note that the underlying credit metrics have remained largely stable in our cards business. This reserve build reflects our focus on staying ahead of the visible credit trends, by considering as many factors as possible in establishing our reserves.

Second, in the international cards business, portfolio growth and seasoning and the impact of recent acquisitions resulted in higher reserve levels.

(Excerpt from full C conference call transcript)

Wal-Mart’s (WMT - Annual Report) customers are feeling the pinch.

Consumers today are pressed by a number of factors. Higher energy, higher gas prices and higher interest rates are all stretching their paychecks. Families with school-aged children are expected to spend more than $500 this year on back-to-school products. Our price campaign is designed to make a difference for families by saving them money where it counts most: on items like backpacks, pencils and socks. We’re encouraged by the response we’re seeing in back-to-school in August. 14 states have tax-free days during the start of this month. In addition, several states have delayed some school openings and we expect the trend we have seen with other seasons to continue. People are buying closer to the event.

As reported by other retailers, we’re experiencing similar trends in soft sales of home products driven by the slow down in housing. In addition, Wal-Mart’s softness in the home and apparel categories has been compounded by the difficulties we have had this past year and have shared with you. The result is that home and apparel remain soft through the second quarter. We’re starting to see some improvement in certain home categories this month and we are pleased so far with the sales results and customer response to the test of the New Home that we are piloting in several markets.

We continue to see pressure in all areas of apparel and continue to take pricing actions needed to sell through our inventory. We’re seeing some positive trends in sleepwear and men’s sports apparel. In the children’s areas, licensed apparel is picking up momentum and as I mentioned earlier on, we do expect our kid’s apparel categories to rebound this month.

(Excerpt from full WMT conference call transcript)

I guess it is not surprising that the top companies are seeing an outlook as mixed as that of the overall economy.

Disclosure: Author is long IShares MSCI Japan Index (EWJ) at time of publication.

Those playing the CNBC stock picking game can earn bonus points by answering trivia questions. Since we are all about doing the research to make it easier for other people to make investment decisions, we are pointing to the correct answers. Subscribe for free to get our daily updates. You might even pick up a few good picks when you visit. Click here for a list of all the questions.

The Video trivia question for Thursday, May 3:

General Motor’s earnings came in below analyst expectations. What were earnings per share?

Video – CNBC.com

GM’s Q1 earnings came in at 17 cents a share, below analysts’ expectations, and Phil LeBeau, CNBC automotive reporter, discusses the numbers

2,000 Bonus Bucks for us.

In some ways, having a one-letter ticker symbol is considered prestigious – a sign that the company was able to stake an early claim on the stock market real estate. Whether true or not, Federated Department Stores is after one of the few remaining available letters following its planned name change to Macy’s.

M Is Not For Microsoft – Forbes.com

“M” was once thought to be reserved by the New York Stock Exchange for Microsoft (nasdaq: MSFT – news – people ), which is listed on the Nasdaq Composite as “MSFT.”The letter was available, so that made it fair game for Federated, which has traded under the ticker symbol “FD” on the New York Stock Exchange since 1992.

Of the more than 3,100 companies whose stocks trade on the NYSE, the following one-letter symbols are available: G, I, J, L, N, P, U, V, W and Z.

Federated Chief Executive Terry Lundgren made it sound like it’s a positive change in corporate strategy rather than just a sexier, more attractive letter.

“Changing the parent company name to Macy’s Inc.,” Lundgren said in a news release, “while trading our shares under the ‘M’ ticker symbol will make it simple and clear for all investors to understand we are a brand-driven and consumer-oriented company.”

So just how prestigious is the honor? You be the guide as we scroll through the list of existing one-letter tickers. (We promise we are going only by memory – for the CNBC Trivia crowd, have some fun and try to fill in the blanks or catch us out if we are wrong!

A – Agilent

B – ?

C – Citigroup (formerly Chrysler until the Daimler thingy)

D – ?

E – ?

F – Ford

G – Not in use

H – ?

I – Not in use

J – used to be Jackpot, Inc. Were they bought?

K – Kellogg

L – Not in use

M – Soon to be Macy’s

N – Was Inco

O – ?

P – Not in use

Q – Qwest Communications

R – Ryder System

S – Sprint Nextel (used to be Sears)

T – AT&T

U – Not in use

V – Not in use

W – Not in use

X – US Steel
Y – ?
Z – Not in use

So… three telecom companies and a bunch of old line firms. You decide how prestigious it is, and comment below on our shortcomings.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.

When we hosted The Festival of Stocks, we made the following comment on one of the submissions:

Traders Insights looks at MGM and likes what he sees. We must admit, with this cash cow in his stable we were somewhat perplexed as to why Kirk Kerkorian was messing around with something like GM rather than buying out the public float on this bad boy.

From our mouths to his ears?

Tracinda Corporation, the investment firm owned by billionaire Kirk Kerkorian, said it is making a 55 usd per share offer for up to 15 mln shares in MGM MIRAGE Inc, in a deal that could be valued at up to 825 mln usd.

The offer price represents a 12.2 pct premium over MGM MIRAGE’s closing share price of 49 usd on November 21, Tracinda said.

The firm already owns 56.3 mln shares in MGM. If the deal is completed, Kerkorian will own a 61.7 pct stake in the company.

It’s gotta be a better bet than GM.