Hot Picks: Auto parts resilience, housing demand drive retail outlook

Retail stocks tied to essential spending and delayed housing demand are emerging as defensive plays in a volatile macro environment.

BNN Bloomberg spoke with Steven Zaccone, senior analyst, equity research at Citi, who highlighted opportunities in auto parts retail, housing-linked recovery plays and inflation-sensitive rural spending.

Key Takeaways

• Auto parts retail remains defensive as consumers prioritize vehicle repairs despite tighter budgets and higher interest rates.
• Market share gains and consistent execution continue to support long-term growth in the auto aftermarket segment.
• Weak housing turnover is delaying home improvement spending, but pent-up demand could drive future growth.
• Higher interest rates remain a key risk for housing-linked retailers, particularly for large project activity.
• Inflation-sensitive rural retail segments may benefit from higher commodity and energy prices.

Read the full transcript below:

LINDSAY: Welcome back. It’s time now for Hot Picks, and today we’re zeroing in on the retail sector. Our next guest has O’Reilly Automotive as his top pick, pointing to steady growth with expansion ahead for the auto parts retailer. Joining us now is Steve Zaccone, senior analyst, equity research at Citi. It’s great to have you with us. Thanks so much.

STEVE: Thanks for having me on, Lindsay. Great to be here.

LINDSAY: Let’s start with O’Reilly Automotive. You say the company has been the leader of consistency among auto parts retailers.

STEVE: Yeah, consistency in the auto parts retail space. It’s one of the best executors in all of retail. Auto parts retail is a great defensive sub-sector in the current environment. It’s a needs-based category — in a period of higher interest rates and tighter consumer budgets, people still need to repair their existing vehicles. So the business serves that sweet spot. They’ve also been a major market share gainer relative to independents and other players. O’Reilly is really best-in-class in the segment.

LINDSAY: Is there any downside risk to your buy rating on this company?

STEVE: Yeah. We’re in a very macro-driven environment. Oil prices are up — what does that do to the consumer? We’ve published extensively on gas prices and related risks. We had about 60 companies at our conference last week in Miami, including O’Reilly, and there’s a lot of uncertainty. Key factors are how long geopolitical conflicts last and what happens to consumer traffic and spending. If the consumer weakens, that’s a risk. But auto parts is relatively defensive because it’s needs-based, compared with more discretionary retail.

LINDSAY: Let’s turn to Home Depot. What do you like about the company right now?

STEVE: If we start with the backdrop, we’ve seen a pullback in housing-exposed names over the past month or two. There was optimism that rates would come down, but that hasn’t fully materialized. This selloff is an opportunity to lean into higher-quality businesses with cyclical exposure — and Home Depot is near the top of that list. Home improvement has pent-up demand, though timing is hard to call. Housing turnover has been weak, and people have delayed projects. As turnover improves over the next few years, Home Depot is a strong way to play that. It has exposure to both DIY customers and professional contractors, and it’s investing to build out capabilities. With a longer-term horizon, this looks like an opportunity.

LINDSAY: I’m assuming key risks for Home Depot are tied to the housing market. Is that right?

STEVE: Yes — primarily the U.S. housing market. Rates are critical because they drive housing turnover. Turnover leads to larger project activity — kitchens, baths, flooring — which has been weak. Engagement at home has improved, but you need that turnover to unlock bigger projects. It’s a strong business that can protect margins even if sales soften. The main risk is the top-line environment, but that could present a longer-term buying opportunity.

LINDSAY: Your final pick is Tractor Supply Company. What stands out there?

STEVE: Tractor Supply is interesting and timely. With oil prices rising, it can benefit from inflation. It sells oil-related products like lubricants and has exposure to U.S. regions tied to energy production, such as Texas and Oklahoma. It also has sensitivity to commodity inflation — things like corn and grain, since it sells livestock feed. Oil prices tend to lead commodity inflation, which can benefit its business. There’s also a secondary housing link, and exposure to categories like pet, where trends could improve by 2026. Sales have been softer in recent years, but it’s a high-quality business with strong margin control. The recent weakness could be a buying opportunity.

LINDSAY: The retail sector has been relatively resilient to tariffs, absorbing costs so far. But we may be seeing a shift in consumer spending. Does that concern you?

STEVE: Tariffs have largely been passed on to consumers, and we’re likely near peak tariff pricing into late 2025 and early 2026. We haven’t seen widespread margin pressure. The bigger concern is the consumer — especially if geopolitical tensions persist and oil prices remain high. That could impact lower-income consumers and spending on big-ticket items. If tensions ease and oil prices fall, confidence could recover quickly. If not, it’s something to watch closely.

LINDSAY: We’ll leave it there. Steve Zaccone, senior analyst, equity research at Citi. Appreciate your time and insight. Thanks for joining us.

STEVE: Thank you.

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This BNN Bloomberg summary and transcript of the March 19, 2026 interview with Steve Zaccone are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.