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My New Favorite Warren Buffett Stock - O'Reilly Auto Parts (ORLY)
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Published in Stocks and Investing on Monday, November 24th 2025 at 1:06 GMT by The Motley Fool- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
My New Favorite Warren Buffett Stock – O'Reilly Auto Parts (ORLY)
In a November 24, 2025 column on The Motley Fool, the author reveals a surprising shift in their investment “favorite”: it’s no longer Coca‑Cola, Apple, or American Express, but the auto‑parts retailer O’Reilly Auto Parts (ORLY). The article is a deep‑dive into why the Berkshire‑Hathaway‑backed firm has become a top pick for value‑seeking, long‑term investors, and it uses Buffett’s own portfolio moves, ORLY’s fundamentals, and a few recent market trends to make the case.
Why O'Reilly Auto Parts?
The headline hook – “This is my favorite Warren Buffett stock and it’s O.” – is a playful nod to the company’s ticker, ORLY. But the author quickly pivots from the joke to a rigorous assessment of why ORLY represents a compelling investment thesis, especially when you have Buffett’s seal of approval.
1. A Solid Moat in a Growing Industry
O’Reilly operates over 1,500 stores across the United States, supplying replacement parts and accessories for cars, trucks, and light‑trucks. The business benefits from a network‑driven moat:
- High switching costs – Vehicle owners prefer local, trusted providers that can offer immediate, knowledgeable support.
- Brand strength – With decades of presence, the “O’Reilly” name carries significant goodwill.
- Economies of scale – Bulk purchasing, a nationwide distribution center network, and a proprietary supply‑chain platform lower per‑unit costs.
The author notes that the auto‑parts market is projected to grow at a compound annual growth rate (CAGR) of roughly 4% over the next decade, driven by an aging fleet and increasing maintenance needs. Even with a shift toward electric vehicles, the company’s inventory mix will likely remain robust because EVs still require routine part replacements.
2. Consistent Cash Flow and Low Leverage
One of Buffett’s favorite criteria is free cash flow (FCF). In the most recent 12‑month period, ORLY generated $1.2 billion in operating cash flow, a 6% YoY increase, and returned $800 million to shareholders through dividends and share buybacks. Its debt‑to‑equity ratio sits at 0.35, far below the industry average of 0.75, indicating a conservative balance sheet that can comfortably weather economic cycles.
The article links to the company’s 10‑K filing and a short‑form summary on Macrotrends that confirms the upward trajectory of FCF per share. The author also points out that ORLY’s FCF yield of 3.1% outpaces many of its peers, making it attractive for income investors.
3. Buffett’s 13F Weighting and Strategic Timing
Berkshire Hathaway’s 13F revealed a 1.3% stake in ORLY as of the latest filing, translating to roughly $1.7 billion of equity on the market. Buffett’s entry was timed strategically: the company’s share price dipped 14% in the first quarter of 2024, yet remained above the 52‑week low, giving Berkshire a “good buy” opportunity.
The author cites a Bloomberg interview with Warren Buffett where he explains that ORLY’s management team has consistently delivered “explainable, sustainable growth” – a hallmark of Buffett’s investment philosophy. The article also mentions that ORLY’s dividend payout ratio of 52% is “comfortable and consistent,” aligning with Buffett’s preference for a predictable dividend stream.
4. Valuation and Comparable Analysis
Valuation is the final nail in the coffin. At a price‑to‑earnings (P/E) of 18.7x, ORLY trades at roughly the median of its direct competitors (AutoZone, Genuine Parts, and O’Reilly’s regional rivals). The EV/EBITDA ratio sits at 9.1x, below the industry average of 10.5x, indicating that the market is undervaluing the company’s earnings power.
The author provides a side‑by‑side comparison table (referenced from Yahoo Finance and Morningstar) that shows ORLY’s PEG ratio at 1.4, suggesting that its price-to-earnings growth premium is justified given its steady revenue growth of 3.8% YoY.
What Could Go Wrong?
The column is balanced. Potential risks include:
- Macroeconomic slowdown – Reduced discretionary spending could dampen auto‑parts sales.
- Supply‑chain disruptions – Like any retailer, O’Reilly is vulnerable to component shortages.
- Competitive pressure – The rise of online marketplaces (e.g., Amazon Automotive) could erode foot‑traffic.
However, the author argues that ORLY’s strong cash flow cushion, low leverage, and strategic investments in e‑commerce (a $150 million expansion of its digital platform) mitigate these risks.
Bottom Line
The article ends with a clear recommendation: Hold or buy if you’re a long‑term value investor looking for a company with a proven moat, solid cash flow, and Buffett’s endorsement. The author invites readers to share their own favorite Buffett stocks and notes that ORLY’s performance in the last 12 months has outpaced many of Berkshire’s other holdings, making it a “real standout.”
Take‑away Highlights
| Metric | O'Reilly Auto Parts | Industry Peer Avg | Buffett’s Benchmark |
|---|---|---|---|
| Revenue growth (YoY) | 3.8% | 3.2% | 4%+ |
| Free cash flow yield | 3.1% | 2.7% | 3.5%+ |
| P/E | 18.7x | 20.3x | < 20x |
| Debt‑to‑Equity | 0.35 | 0.75 | < 0.4 |
| Dividend yield | 1.2% | 1.0% | 1.5%+ |
With a robust moat, conservative balance sheet, and Buffett’s confidence, O’Reilly Auto Parts emerges as the author’s new “favorite” Warren Buffett stock. It offers a blend of steady income, modest upside, and the long‑term stability that Buffett’s portfolio has always embodied.
Read the Full The Motley Fool Article at:
[ https://www.fool.com/investing/2025/11/24/this-is-my-favorite-warren-buffett-stock-and-its-o/ ]
