In this article, we will take a look at the 10 best industrial distribution stocks to buy now. To skip our analysis of the recent trends, and market activity, you can go directly to see the 5 Best Industrial Distribution Stocks to Buy Now.
Industrial distribution companies are typically sales organizations responsible for the movement of industrial goods from the manufacturing industry to the end users. These companies generally connect manufacturers to retailers, commercial, institutional, and government product users by establishing partnerships with the manufacturers and taking responsibility for the products once they have been manufactured.
While generalized industrial distribution companies also exist, a majority of the companies in this industry typically specialize in a specific product or group of products. A prime example of specialization is the case of Fastenal Company (NASDAQ:FAST), which generated 34% of its $7.0 billion revenue from the sale of fasteners.
Independent industrial distribution companies are more prevalent in the construction, chemicals, and electrical industries as the manufacturers prefer to conduct their business through them instead of selling their products directly to the consumers. Apart from these industries, industrial distribution companies mostly sell products for original equipment manufacturing (OEM) which are either consumed in the end products of consumers or manufacturing, repair, and operations (MRO).
The industrial distribution industry, similar to other industries, has been affected by the recent economic downturn. Uncertainty is expected to further keep the markets in a state of turmoil at least in the short term. According to a report by McKinsey & Company, the industrial distribution industry, as a whole, is expected to be impacted by the market conditions, but a few companies are also expected to gain significant strategic advantage over their competitors.
The report employed an analysis of major industrial distribution companies after the recession of 2007 to 2009. A subset of ‘resilient’ companies managed to outperform peers by as much as 70% in terms of total shareholder returns after the recovery in the growth period. The ‘resilient’ companies cut down on their costs, improved operational and technological capabilities, and opted for strategic acquisitions to improve their margins. The same can be seen in effect across major companies in the industry this time around.
According to National Association of Wholesaler-Distributors (NAW), the industrial distribution industry in the United States is responsible for $8.2 trillion in economic activity and employs more than 5 million personnel nationwide. Some of the leading companies in the industry are Watsco, Inc. (NYSE:WSO), W.W. Grainger, Inc. (NYSE:GWW), WESCO International, Inc. (NYSE:WCC), and Ferguson plc (NYSE:FERG), among others.
We used stock screeners to identify the companies that operate in the industrial distribution industry and shortlisted the stocks with growth catalysts, strong fundamentals, and positive market sentiment. The final step involved the ranking of the identified list of stocks based on their popularity among the top hedge funds tracked by Insider Monkey.
10. SiteOne Landscape Supply, Inc. (NYSE:SITE)
Number of Hedge Fund Holders: 18
SiteOne Landscape Supply, Inc. (NYSE:SITE), based in Roswell, Georgia, is a leading wholesale distributor of landscaping products in the United States and Canada. Its portfolio comprises of nearly 155,000 stock keeping units including irrigation supplies, fertilizers, herbicides, hardscapes, landscape accessories, nursery goods, and outdoor lighting, among others.
SiteOne Landscape Supply, Inc. (NYSE:SITE) closed two acquisitions during Q1 2023: J&J Materials and Triangle Landscape Supplies. The acquisitions boosted its net sales and led to a 4% y-o-y growth in the top line. In addition, the acquisitions also allowed the company to improve its gross margins by 0.9%.
As of March 31, SiteOne Landscape Supply, Inc. (NYSE:SITE) shares were held by 18 hedge funds out of the 943 prominent hedge funds tracked by Insider Monkey. Ian Simm’s Impax Asset Management was its largest hedge fund shareholder with ownership of 1.05 million shares valued at $148 million.
9. Titan Machinery Inc. (NASDAQ:TITN)
Number of Hedge Fund Holders: 19
West Fargo, North Dakota-based Titan Machinery Inc. (NASDAQ:TITN) is one of the largest dealers of agricultural and construction equipment in the United States with a network of more than 70 North American dealerships and 35 European dealerships in Romania, Bulgaria, Germany, and Ukraine.
Titan Machinery Inc. (NASDAQ:TITN) has benefitted from high net farm incomes which has led to a significant increase in its topline. In Q4 2022, its revenue increased by 15% y-o-y to $583 million while it generated a net income of $18 million.
Since December 2021, Titan Machinery Inc. (NASDAQ:TITN) has been on an acquisition spree to expand its dealership network. It made four major acquisitions during this period which combined account for 22 store locations and nearly $400 million in annualized revenue. The company plans to continue with further acquisitions if presented with opportunities.
8. MSC Industrial Direct Co., Inc. (NYSE:MSM)
Number of Hedge Fund Holders: 29
Davidson, North Carolina-based MSC Industrial Direct Co., Inc. (NYSE:MSM) is a leading North American distributor of metalworking and maintenance, repair, and operations (MRO) products and services with a portfolio of more than 2 million products.
On April 4, MSC Industrial Direct Co., Inc. (NYSE:MSM) released its financial results for the quarter ended March 4, 2023. Its revenue increased by 11% y-o-y to $961 million while net income increased by 13% y-o-y to $79 million. It managed to beat the consensus estimates for EPS by $0.09 with a normalized EPS of $1.45 for the quarter.
MSC Industrial Direct Co., Inc. (NYSE:MSM) currently has a 3.47% dividend yield with a quarterly dividend payout of $0.79 per share. Its dividend payouts have grown at a CAGR of 17.42% in the past 5 years.
On April 21, KeyBanc analyst Newman raised the price target on MSC Industrial Direct Co., Inc. (NYSE:MSM) shares to $105 from $97 and maintained an ‘Overweight’ rating for the shares.
7. Applied Industrial Technologies, Inc. (NYSE:AIT)
Number of Hedge Fund Holders: 29
Applied Industrial Technologies, Inc. (NYSE:AIT) is one of the largest distributors and service providers of industrial supplies with a focus on bearings, power transmission, fluid power, flow control, and automation solutions.
Applied Industrial Technologies, Inc. (NYSE:AIT) managed to beat consensus estimates for revenue as well as EPS in Q1 2023. It generated a revenue of $1.1 billion, up 15% y-o-y, and a net income of $97 million which translated to an EPS of $2.47, $0.34 more than the consensus. The company currently pays a quarterly cash dividend of $0.35 per share.
Following the earnings release, Baird analyst David Manthey raised the price target on Applied Industrial Technologies, Inc. (NYSE:AIT) shares to $161 from $160 and maintained an ‘Outperform’ rating for the shares.
As of Q1 2023, Israel Englander’s Millennium Management was the largest hedge fund shareholder of Applied Industrial Technologies, Inc. (NYSE:AIT) with ownership of 0.33 million shares valued at $47.5 million. The hedge fund has recently displayed significant affection for the stock as it more than quadrupled its stake in the company during the first quarter.
6. W.W. Grainger, Inc. (NYSE:GWW)
Number of Hedge Fund Holders: 32
Based in Chicago, Illinois, W.W. Grainger, Inc. (NYSE:GWW) is a leading distribution company offering maintenance, repair and operating (MRO) products and services, such as technical support and inventory management.
On April 27, W.W. Grainger, Inc. (NYSE:GWW) reported the financial results for Q1 2023. The company had a strong quarterly performance with a 12% y-o-y surge in revenues to $4.1 billion and a 32% y-o-y increase in net income to $508 million.
W.W. Grainger, Inc. (NYSE:GWW) is a member of the dividend aristocrats’ group with a history of 52 consecutive annual dividend increases. The latest increase, amounting to 8% of the previous dividend, was announced in April this year.
According to the Insider Monkey data on 943 leading hedge funds, 32 hedge funds were long W.W. Grainger, Inc. (NYSE:GWW) shares as of Q1 2023, with the total shares held by hedge funds valued at $286 million.
Carillon Tower Advisers, an investment management company, said the following about W.W. Grainger, Inc. (NYSE:GWW), in its Q1 2023 investor letter:
“Grainger has executed well recently, as the market share gains it achieved during the pandemic have remained durable, and company management continues to believe they have considerable room for further gains in what remains a particularly fragmented industry.”
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Disclosure: None. 10 Best Industrial Distribution Stocks to Buy Now is originally published on Insider Monkey.