We recently compiled a list of the 10 Best Industrial Distribution Stocks to Buy Now. In this article, we are going to take a look at where MSC Industrial Direct Co., Inc. (NYSE:MSM) stands against the other industrial distribution stocks.
The global industrial distribution market is on a robust growth trajectory, projected to escalate from USD 8.41 trillion in 2024 to over USD 12.39 trillion by 2033 (according to estimates from Precedence Research). This remarkable expansion, representing a compound annual growth rate (CAGR) of 4.39%, underscores the critical role industrial distribution plays in various sectors, including manufacturing, construction, energy, and transportation. As of 2023, the market was valued at USD 8.06 trillion, indicating a steady rise as industries adapt to changing dynamics and technological advancements.
At its core, industrial distribution encompasses the supply chain segment dedicated to delivering industrial products, equipment, and services to a wide array of industries. The term refers to the transfer of industrial goods from manufacturers to various endpoints in the industrial supply chain, with distributors acting as intermediaries to facilitate this process. Historically focused on Maintenance, Repair, and Operations (MRO) and Original Equipment Manufacturer (OEM) items, the scope of industrial distribution has broadened significantly, now including a diverse array of wholesale distributors.
According to the National Association of Wholesale Distributors, the sector boasts over 30,000 organizations that collectively generate upwards of USD 7.4 trillion in annual sales. These distributors connect manufacturers with retailers, government entities, and commercial customers, creating an essential link in the supply chain. Education programs in industrial distribution equip graduates with the skills necessary for high-level technical sales and leadership roles in this multifaceted industry.
The MRO supplies segment leads the market, with significant revenue contributions alongside other categories such as electrical equipment, OEM supplies, and hand tools. As the industrial landscape evolves, these segments reflect the growing demand for efficiency and reliability in operations. Geographically, North America currently dominates the industrial distribution market, commanding a 41.5% share of total revenue in 2023. This region’s market size was valued at USD 3.34 trillion and is expected to grow to USD 4.79 trillion by 2033, propelled by a CAGR of 3.65%. The United States alone is anticipated to reach a market size of USD 4.09 trillion during the same period.
Conversely, the Asia-Pacific region is poised for the fastest growth, with a projected increase from USD 2.69 trillion in 2023 to around USD 4.31 trillion by 2033. This growth is fueled by governments prioritizing infrastructure development and implementing industrial policies that support industrial expansion. The adoption of advanced manufacturing and logistics technologies in this region has significantly enhanced supply chain efficiency, making it a hotbed for industrial distribution activities.
Looking ahead, the industrial distribution market is set to undergo transformative changes. The integration of Industry 4.0 technologies such as 3D printing, robotics, and blockchain will reshape supply chain management by enhancing automation, customization, and item traceability. Additionally, the emergence of circular economy principles will encourage sustainable practices, with a focus on product lifecycle management and waste reduction. The transition to predictive maintenance and the concept of servitization, offering value added services such as maintenance and equipment leasing, are also expected to disrupt traditional business models. These innovations will provide significant value to customers while enhancing operational efficiencies.
While the market is robust, it is not without challenges. Many industrial distributors face issues related to data management and analytics, which are critical for effective decision-making and demand planning. A lack of data can hinder inventory management and lead to inefficiencies, particularly in the rapidly evolving e-commerce landscape. Conversely, embracing digital transformation and automation presents a significant opportunity. By leveraging technologies such as machine learning and inventory optimization tools, distributors can streamline their operations, reduce costs, and enhance customer experiences.
In this article, we will explore the ten best industrial distribution stocks to buy now. These companies are well-positioned to capitalize on market trends, leveraging advanced technologies and innovative strategies to thrive in this dynamic environment. Whether you are an investor looking to diversify your portfolio or someone interested in understanding the industrial distribution landscape, these stocks represent compelling opportunities in a rapidly growing market. As we delve into each stock, we’ll highlight their strengths, market positions, and the key factors driving their success, providing you with valuable insights into the future of industrial distribution.
Our Methodology
For this article, we used stock screeners to identify 20 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. We selected the 10 stocks that were the most widely held by hedge funds, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A machine shop filled with high-precision tools and components representing the quality of the company’s metalworking products.
MSC Industrial Direct Co., Inc. (NYSE:MSM)
Number of Hedge Fund Holders: 27
MSC Industrial Direct Co., Inc. (NYSE:MSM) was founded in 1941 and is headquartered in Melville, New York. MSC Industrial Direct Co., Inc. (NYSE:MSM) is an essential player in the industrial distribution sector, offering metalworking and maintenance, repair, and operations (MRO) products to manufacturers across North America. With a vast catalog of products and services, the company is a go-to supplier for industries that rely on high-precision tools and efficient operations. Its strong presence in metalworking and innovative solutions like vending and implant programs make it a compelling choice for investors seeking exposure to industrial distribution. As of Q2 2024, 27 hedge funds held positions in MSC Industrial Direct Co., Inc. (NYSE:MSM), compared to 31 in the previous quarter, reflecting solid institutional interest in the stock despite some recent fluctuations.
The company recently reported earnings for Q2 2024, beating expectations with an EPS of $1.18, slightly above the expected $1.16. While growth in its core customer base has been slower due to the sluggish macroeconomic environment, MSC’s strategic initiatives are driving performance in other areas. For example, its vending programs grew by 11%, and implant solutions saw a 39% year-over-year increase, outperforming expectations. These initiatives are expected to continue contributing to revenue growth in the latter half of the fiscal year and into 2025.
On the financial side, MSC Industrial Direct Co., Inc. (NYSE:MSM) has demonstrated strong operational efficiency. The company’s gross margin for Q2 2024 was 41.5%, up 20 basis points year-over-year, driven by effective cost controls and pricing adjustments. Additionally, the company reduced its inventory by $25 million, which positively impacted cash flow. Although operating expenses increased due to strategic investments, these are expected to contribute to long-term growth. The company’s decision to close its Columbus distribution center is projected to result in $5-$7 million in annualized savings by fiscal 2025, further improving profitability.
MSC Industrial Direct Co., Inc. (NYSE:MSM) is well placed for future growth. Despite current macro challenges, the company’s initiatives in automation, productivity improvements, and a growing e-commerce platform make it a stock to watch in the industrial distribution sector.
Overall MSM ranks 10th on our list of the best industrial distribution stocks to buy. While we acknowledge the potential of MSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.