W.W. Grainger: Almost One Million Reasons to Buy

TheStreet.com

NEW YORK (TheStreet) -- One of the largest holdings at Gunderson Capital continues to be W.W. Grainger . Here's why:

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The Lake Forest, Ill., large-cap company distributes more than 900,000 tools, lighting, plumbing and other maintenance products through 368 branches and 15 distribution centers.

I can hardly wait until my Grainger catalog arrives in the mail every year. I especially like the plumbing-fixture pictures and accompanying descriptions. Now this is compelling reading!

As an investor, however, I really don't care how exciting the company's wordy catalog is. I care more about making money in the stock. Here are the performance numbers for the company over the years:

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As you can see, the stock has outpaced the S&P 500 by a wide margin over the last three, five and 10 years. Also note that the stock was only down 8.2% in 2008, while the market was down 38.5%.

I guess folks still need widgets for "this and that," despite a financial crisis.


When I compare the performance of Grainger against the other 3,300 stocks that I track, it earns a performance grade of "A-". Not bad for a widget distributor.

I got back into the stock a few months ago after being out of it for about one year. It does not look like I missed much as the stock has underperformed the market over the last 12 months for a change.

I got back into the stock when it broke through resistance about two months ago.

In addition to a stock that has outperformed the market over the years, I also like a healthy stock chart.

I don't like buying stocks in downtrends. I don't especially care for sideways trends and I get really nervous about extended charts that are beginning to roll over.

I like to buy good stocks like Grainger when they are breaking out. The breakouts obviously don't always follow through, but I feel that the probabilities are in my favor.

If the breakout follows through and begins a new uptrend, then I am in business. I ride it for all it is worth -- I hope for months, sometimes even years.

I also have a sell discipline, but I will cover that in other articles.

It also helps that Grainger is a large-cap dividend-paying stock. This is the number-four-ranked asset class at the current time.

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In addition to performance and a healthy stock chart, I also demand a decent value. I have seen too many high PE momentum darlings crash and burn over the years.


Let's have a look at the current valuation of Grainger.

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The stock is currently trading at 16.9 times forward earnings. It is expected to grow by 14.4% per year over the next five years. This makes for a PEG ratio of 1.17 which is not bad.

I then take next year's EPS estimate and extrapolate it out over the next five years at 14.4% per year. I then apply a multiple that I think is appropriate and come up with a five-year target price of $412 per year. This gives me almost 90% upside potential and a value grade of "A-".

Grainger is currently one of my highest-rated large-cap conservative stocks. As the market gets a bit more defensive here, it should continue to do well. Speaking of doing well, I love the earnings the company reported on Tuesday!

Data from Best Stocks Now App

At the time of publication clients of Gunderson Capital Management are long GWW.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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