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 W.W. Grainger, Inc. (NYSE:GWW) 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 portrait of an industrial worker wearing safety equipment, smiling while inspecting a piece of equipment.
W.W. Grainger, Inc. (NYSE:GWW)
Number of Hedge Fund Holders: 32
W.W. Grainger, Inc. (NYSE:GWW) is a leading industrial distribution company, making it a strong contender for inclusion in our list of ten best industrial distribution stocks to buy now. The company distributes maintenance, repair, and operating (MRO) products and services across North America, Japan, the UK, and other international markets. With two primary business segments, High-Touch Solutions N.A. and Endless Assortment, W.W. Grainger, Inc. (NYSE:GWW) offers a wide range of products, including safety and security equipment, plumbing supplies, metalworking tools, and technical support services. As of Q2 2024, 32 hedge funds held positions in the stock, down from 36 in the previous quarter, highlighting its continued appeal to institutional investors.
W.W. Grainger, Inc. (NYSE:GWW) Q2 2024 earnings report was solid, with the company beating earnings expectations. The reported earnings per share (EPS) of $9.76 surpassed analysts’ estimates of $9.59, reflecting a strong financial performance despite a challenging macroeconomic environment. The company’s total sales grew by 3.1%, or 5.1% on a daily organic constant currency basis, showing resilience in both of its business segments. The High-Touch Solutions segment, which contributed significantly to the company’s growth, saw solid volume increases and moderate price improvements, driven by its strong position in the MRO market. Operating margins for the total company stood at 15.4%, demonstrating strong profitability despite a slight year-over-year decline due to increased investments in demand generation.
W.W. Grainger, Inc. (NYSE:GWW) financial health is further highlighted by its return on invested capital (ROIC) of 42.6%, showcasing the company’s ability to efficiently allocate capital and generate substantial returns for shareholders. Additionally, Grainger returned $345 million to shareholders in the quarter through dividends and share repurchases, reflecting its commitment to creating shareholder value. In summary, W.W. Grainger, Inc. (NYSE:GWW) solid fundamentals, robust EPS growth, and efficient operations make it a strong industrial distribution stock to consider. Despite some headwinds such as yen devaluation, the company’s financial metrics and strategic growth initiatives position it well for long-term success.
ClearBridge Multi Cap Growth Strategy stated the following regarding W.W. Grainger, Inc. (NYSE:GWW) in its first quarter 2024 investor letter:
“W.W. Grainger, Inc. (NYSE:GWW), in the industrials sector, was our largest new buy. Grainger is the biggest industrial maintenance, repair, and operations distributor in North America. The company is a share gainer in a large and fragmented market, with less than 10% share of the addressable market for their direct, “high touch solutions” business estimated at more than $165 billion. Grainger has also barely scratched the surface with its online “endless assortment” platform, Zoro.com, which targets an even larger market. In addition to its growth and profit potential, we are attracted to Grainger’s strong balance sheet and improved capital allocation under its current management.”
Overall GWW ranks 7th on our list of the best industrial distribution stocks to buy. While we acknowledge the potential of GWW 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 GWW 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.