As one of the most vital sectors of the global economy, investors are often looking for long-term opportunities in the automotive market. Two auto stocks that are presenting this opportunity and may be in store for a sharp rebound are Advance Auto Parts AAP and Ford F.

While both companies have faced headwinds in recent years, this has also presented a chance for investors to add meaningful positions in these popular auto stocks at a more reasonable valuation.

Advance Auto Parts is Reentering a Growth Phase

As a leading automotive aftermarket parts provider in North America, Advance Auto Parts announced in March that it had completed the store closure phase of its multi-year transformation and is now entering a growth phase.

Optimizing its retail footprint, Advance Auto Parts' transformation plan is aimed at repositioning the company for long-term success by operating more than 75% of its stores in markets where it has the No.1 or No.2 position based on store density, strengthening its presence in strategic communities.

On a national scale, this should help Advance Auto Parts to better compete with competitors like AutoZone AZO and O’Reilly Automotive ORLY. As a formidable disruptor to these automotive parts giants, what may be most intriguing to investors is that at $32 a share, AAP trades at a “fraction” of what AutoZone and O’Reilly trade at in terms of stock price. Most importantly, Advance Auto Parts is expected to post a sharp rebound on its bottom line in the coming years.Zacks Investment Research

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Ford’s Outlook May be Better than Expected

With the U.S. starting to reach trade deals with many of its global trading partners, including China, import tariffs on automakers are expected to be lower than initially feared. Ford was at the center of this conversation and had previously estimated a $1.5 billion tariff impact this year, compared to many analysts' estimates of more than $2 billion.

Keeping in mind this was before this week’s announcement that the U.S. and China will lower their reciprocal tariffs, Ford has taken steps to offset 35% of the impact by adjusting supply chains and halting exports to China, which may not be as necessary. Plus, Ford is still expected to bring in more than $150 billion in annual sales for the foreseeable future. This makes it very advantageous to hold onto the historic automaker's stock at $10 a share, as Ford has shown a commitment to lowering its operating costs and has reacted promptly to a tougher macroeconomic environment.

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AAP & F Check the Box as Value Stocks

Ford has often checked the box as a value stock, and Advance Auto Parts is starting to do so as well. AAP currently trades at a 20.9X forward earnings multiple, a slight discount to the benchmark S&P 500’s average, with AutoZone and O’Reilly at 24.2X and 30.2X, respectively. Meanwhile, Ford trades at 9X forward earnings, which is slightly beneath its Zacks Automotive-Domestic Industry average of 10.8X.

Furthermore, Advance Auto Parts and Ford stock trade well under the optimum level of less than 2X sales and at intriguing discounts in terms of their Price to Book (P/B) value as well.Zacks Investment Research

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Enticing Dividends

The cherry on top in regard to retaining Advance Auto Parts and Ford stock in the portfolio is that they are offering very generous dividends at their current levels. Advance Auto Parts' 3.01% annual dividend certainly stands out as AutoZone, O’Reilly, and many of its automotive parts peers don’t offer a payout.Zacks Investment Research

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Ford's annual dividend is currently at an eye-catching 5.66%, and should be able to maintain this lofty yield, especially if trade talks progress. More intriguing, Ford has an annualized dividend growth rate of 12.48% over the last five years and a 40% payout ratio, which also suggests there is room to sustain or even increase its dividend in the future.Zacks Investment Research

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Bottom Line

Trading more than 50% and 25% off their 52-week highs, Advance Auto Parts and Ford stock may be in store for a sharp rebound at some point. Reassuringly, their short-term outlook should continue to improve with attractive dividends and valuations that are also hard to overlook at the moment.

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Ford Motor Company (F):Free Stock Analysis Report

Advance Auto Parts, Inc. (AAP):Free Stock Analysis Report

O'Reilly Automotive, Inc. (ORLY):Free Stock Analysis Report

AutoZone, Inc. (AZO):Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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