Time to Downshift on These 2 Auto Stocks

AAP has shed 38% year-over-year, while BWA has tacked on 35%

Patrick Martin
Sep 1, 2017 at 3:37 PM
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U.S. stocks closed out August with a win, and are now heading into the weakest trading month of the year. Auto stocks Advance Auto Parts, Inc. (NYSE:AAP) and BorgWarner Inc. (NYSE:BWA) are in the spotlight, due to their inclusion on the list of the worst stocks to own during Labor Day week and in the month of September, respectively. In addition, the House of Representatives will be voting on self-driving car legislation next week; a political agenda that will surely impact auto stocks. Below, we will outline how shares of AAP and BWA have historically performed in the upcoming month, and how traders have been lining up on the two auto stocks. 

Advance Auto Parts Among Worst Labor Day Stocks

At last check, Advance Auto Parts stock was fractionally higher at $97.97. It's been a tough year for AAP stock, which has shed 42% year-to-date, and is fresh off an earnings-induced multi-year low of $82.21 on Aug. 15. The equity has underperformed the broader S&P 500 Index (SPX) by nearly 25 percentage points during the past three months, with its 40-day moving average leading AAP down a path of lower lows. 

This trend could continue, if history is any guide. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, AAP stock has averaged a 1.5% loss over the past 10 years during the week following the Labor Day holiday, ending in positive territory only three times.

In the options pits, short-term traders puts relative to calls at an unusual rate. This is evidenced by AAP's Schaeffer's put/call open interest ratio (SOIR) of 0.80, which ranks in the 81st percentile of its annual range. Digging deeper, peak open interest can be found in the Sept 125 and 90 puts, where over 11,000 contracts are outstanding between the two.

Furthermore, Advance Auto Parts sports a Schaeffer's Volatility Scorecard (SVS) of 85. This indicates the stock has exceeded options traders' volatility expectations during the past year -- a potential boon to premium buyers.

BorgWarner Stock Stares Down Seasonal Headwinds

BorgWarner stock is up 1% to trade at $46.98, bringing its year-over-year advance to 35%. More recently, the stock pulled back after touching an annual high of $48.03 on July 27. 

A steeper retreat could be in store, considering BWA stock has historically underperformed in September. According to data from Schaeffer's Quantitative Analyst Chris Prybal, the security has averaged a 3.27% monthly loss over the past 24 years, with a 42% win rate.

A repeat of history could have bears climbing back on board and/or analysts lowering their ratings. Short interest decreased by 25% during the last two reporting periods, and now only represents 5% of BWA's total available float. Meanwhile, of the 14 brokerages covering the stock, eight rate it a "strong buy."


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