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 Pool Corporation (NASDAQ:POOL) 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).
Aerial view of a swimming pool with outdoor furniture surrounding it.
Pool Corporation (NASDAQ:POOL)
Number of Hedge Fund Holders: 37
Pool Corporation (NASDAQ:POOL) is a leader in the industrial distribution sector, particularly for pool supplies and equipment. Its extensive distribution network supports pool builders, remodelers, specialty retailers, and service businesses in the U.S. and internationally. The company offers a broad range of maintenance products, construction materials, and pool equipment, making it a top contender in the industrial distribution space. Hedge fund interest in Pool Corporation (NASDAQ:POOL) has slightly dipped, with 37 hedge funds holding the stock as of Q2 2024, down from 40 in the previous quarter.
For Q2 2024, Pool Corporation (NASDAQ:POOL) delivered strong financial results, beating earnings expectations with an EPS of $5.02, surpassing the anticipated $4.90. Net sales reached $1.8 billion, showing resilience in the face of economic headwinds that affected discretionary spending on new pool construction and large renovation projects. However, nondiscretionary demand for maintenance-related products remained solid, helping to stabilize the company’s revenue.
Gross margins for Q2 were 30%, down 60 basis points compared to the previous year, reflecting the company’s ability to manage margins even with the pressure from lower discretionary sales and higher commodity costs. Operating income stood at $271.5 million, representing an operating margin of 15.3%. Although this is a decrease from the 17.6% margin in the same quarter last year, it highlights Pool Corporation (NASDAQ:POOL) continued investment in technology, digital platforms, and strategic growth initiatives.
The company’s POOL360 digital platform, which facilitates customer transactions, saw increased adoption, with 14.5% of total sales processed through the platform, up from 11% in Q1. This digital expansion demonstrates Pool Corporation (NASDAQ:POOL) focus on enhancing customer convenience and improving operational efficiency.
Pool Corporation (NASDAQ:POOL) strong cash flow allowed for $173 million to be returned to shareholders through dividends and share repurchases in 2024. Additionally, the company’s dividend increased by 9%, marking the 14th consecutive year of growth. Despite challenging market conditions, Pool Corporation (NASDAQ:POOL) long-term fundamentals remain strong, supported by its robust distribution network, innovative digital tools, and a growing installed base of pools requiring maintenance.
Parnassus Mid Cap Fund stated the following regarding Pool Corporation (NASDAQ:POOL) in its Q2 2024 investor letter:
“Pool Corporation (NASDAQ:POOL), a swimming pool supply distributor, lowered its full-year earnings estimates as demand for new pool construction fell more than expected due to high interest rates impacting big ticket purchases. Most of its revenue comes from maintenance of installed pools, which should be resilient.”
Overall POOL ranks 5th on our list of the best industrial distribution stocks to buy. While we acknowledge the potential of POOL 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 POOL 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.