2. O'Reilly Automotive

Americans are driving their cars for longer and longer. That means they have ever more need for auto parts. For Brian Macauley, manager of the Hennessy Focus Fund (HFCSX), which has averaged 12.9% returns for a decade by holding big positions in a small number of stocks, that's a key part of the appeal of O'Reilly Automotive (ORLY, Fortune 500), one of his top holdings. The company sells a wide array of auto supplies and accessories. Unlike rivals such as Napa Auto Parts and AutoZone (AZO, Fortune 500), O'Reilly, which has 4,000 stores nationwide, is equally adept at selling to both consumers and garages. O'Reilly's gross margins (now above 50%) and operating margins have been climbing for years, and Macauley says the company's superior growth and execution justify its above-category price/earnings ratio of 17. He anticipates 5% to 6% store growth over the next five to eight years. Much of this will be organic, but he says the company's executives have yet another skill: making smart acquisitions without overpaying.

--Katie Benner


- Last updated June 13 2013 07:18 AM ET
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