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 Ferguson Enterprises Inc. (NYSE:FERG) 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 busy warehouse stocked with a variety of industrial plumbing parts.
Ferguson Enterprises Inc. (NYSE:FERG)
Number of Hedge Fund Holders: 54
Ferguson Enterprises Inc. (NYSE:FERG), a leading distributor of plumbing and heating products in North America, stands out as a compelling choice for investors looking for opportunities in the industrial distribution sector. The company’s robust business model and strategic focus on customer solutions make it a top contender in the market. As of Q2 2024, Ferguson Enterprises Inc. (NYSE:FERG) had 54 hedge fund holders, a slight decrease from 55 in the previous quarter, indicating sustained institutional interest in its stock.
In the fourth quarter of fiscal 2024, Ferguson Enterprises Inc. (NYSE:FERG) reported impressive earnings, exceeding expectations with an EPS of $2.98 compared to a consensus of $2.85. This reflects a 7.6% increase from the previous year, demonstrating the company’s resilience amid a challenging market characterized by deflation and fluctuating demand. The company achieved revenues of $7.9 billion, up 1.4% year-over-year, highlighting its ability to navigate economic pressures effectively.
Ferguson Enterprises Inc. (NYSE:FERG) gross margin remained robust at 31%, driven by its value-added services and efficient cost management. The adjusted operating profit for Q4 was $857 million, an increase of 5.3% over the prior year, resulting in an impressive adjusted operating margin of 10.8%. For the full fiscal year, Ferguson generated $29.6 billion in revenue, maintaining a gross margin of 30.5%. The company’s proactive approach to managing operating expenses resulted in an adjusted operating profit of $2.8 billion and a solid adjusted operating margin of 9.5%.
The strategic investments in capital expenditures totaling $372 million reflect Ferguson Enterprises Inc. (NYSE:FERG) commitment to enhancing its competitive advantages and expanding its market reach. Additionally, the company returned $1.4 billion to shareholders through dividends and share repurchases, underscoring its strong cash generation capabilities and shareholder-friendly policies.
Ferguson Enterprises Inc. (NYSE:FERG) balanced exposure to both residential and non-residential markets has allowed it to mitigate risks associated with market fluctuations. Despite facing headwinds, its unique multi-customer approach has positioned it well for continued growth. With a strong balance sheet and a proven track record of above-market growth, Ferguson Enterprises is poised to navigate future challenges successfully, making it one of the best industrial distribution stocks to buy now.
ClearBridge Mid Cap Strategy stated the following regarding Ferguson plc (NYSE:FERG) in its first quarter 2024 investor letter:
“We also added a new position in Ferguson plc (NYSE:FERG), a leading distributor of plumbing supplies and other products to plumbing and mechanical contractors, in the industrials sector. The company commands the largest market share in the industry, and primarily competes against small and localized competitors, creating a compelling opportunity for growth through a combination of market share gains and accretive acquisitions. We believe the company is uniquely positioned to win opportunities on nonresidential “mega” projects, as well as participate in any potential rebound in residential construction.”
Overall FERG ranks 1st on our list of the best industrial distribution stocks to buy. While we acknowledge the potential of FERG 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 FERG 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.