In this piece, we will take a look at ten best industrial distribution stocks to buy now.
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.
A large tanker truck carrying volatile industrial liquid chemicals, emphasizing the company’s transportation capabilities.
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).
10. 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.
09. Fastenal Company (NASDAQ:FAST)
Number of Hedge Fund Holders: 29
Fastenal Company (NASDAQ:FAST) is a key player in the industrial distribution sector, making it an excellent addition to the ten best industrial distribution stocks to buy now list. The company operates in the wholesale distribution of industrial and construction supplies across the United States, Canada, and Mexico, and offers a broad range of fasteners and related industrial products, making it integral to the supply chains of various industries, including manufacturing, construction, and maintenance. Fastenal Company (NASDAQ:FAST) serves a diverse customer base, ranging from manufacturers and construction firms to governmental entities and oil exploration companies, which demonstrates its deep market penetration and robust distribution network.
Fastenal Company (NASDAQ:FAST) Q2 2024 earnings call highlighted strong operational fundamentals despite facing market challenges. The company beat earnings expectations with an EPS of $0.51, slightly above analysts’ forecast of $0.509. This reflects effective cost management and steady demand for Fastenal’s products. Fastenal’s sales grew by 2%, which, although modest, comes in the context of a challenging industrial environment impacted by the prolonged downturn in U.S. industrial production. Fastenal has sustained its revenue by serving essential industries, especially through its ability to meet immediate needs in critical sectors such as refining and construction.
A key strength of Fastenal Company (NASDAQ:FAST) is its strategic use of technology. The introduction of its AI-powered system, dubbed “Fastenal Intelligence,” enhances supply chain efficiency by providing better information to sales teams and improving customer service. This technological initiative is expected to further streamline operations, potentially boosting productivity and margins in the coming quarters.
Moreover, Fastenal Company (NASDAQ:FAST) focus on customer acquisition remains strong, with robust onsite and FMI (Fastenal Managed Inventory) signings and growth in national contracts. This solidifies the company’s future revenue streams, reinforcing its value as a long-term investment.
As of Q2 2024, 29 hedge funds held positions in Fastenal Company (NASDAQ:FAST), the same number as in the previous quarter, underscoring steady institutional interest. Overall, Fastenal Company (NASDAQ:FAST) financial stability, diverse market presence, and strategic technological advancements position it well for sustained growth in the industrial distribution sector.
08. Watsco, Inc. (NYSE:WSO)
Number of Hedge Fund Holders: 29
Watsco, Inc. (NYSE:WSO) stands out as a key player in the industrial distribution sector due to its leadership in distributing air conditioning, heating, and refrigeration equipment across the U.S. and internationally. The company’s extensive product lineup, which includes residential and commercial HVAC systems, replacement parts, and ancillary supplies, supports contractors servicing both replacement and new construction markets. Watsco’s established presence and diverse offerings in this sector make it a strong inclusion among the best industrial distribution stocks to invest in now.
As of Q2 2024, 29 hedge funds have invested in Watsco, Inc. (NYSE:WSO), a slight decrease from 31 in the previous quarter. Despite this, Watsco’s fundamentals remain solid, underscoring its bullish outlook. In the second quarter of 2024, Watsco reported record sales, driven by strength in both the residential and commercial markets. This growth was further amplified by improving operational efficiency, with lower SG&A expenses as a percentage of sales. The company’s balance sheet is robust, positioning it to capitalize on growth opportunities through strategic investments.
Watsco, Inc. (NYSE:WSO) adoption of innovative technologies has been pivotal in enhancing its competitive edge. With over $2.5 billion in annualized e-commerce sales, the company’s digital platforms are playing an increasingly vital role in its success. Notably, OnCall Air, Watsco’s consumer-facing platform, helped contractors generate $743 million in sales, a 27% year-over-year increase.
Another growth driver is the company’s proactive stance on regulatory changes, such as the shift to low-GWP-A2L systems. These changes, alongside energy efficiency mandates, offer Watsco opportunities to further grow its market share, particularly in the heat pump segment, which has seen increased demand due to the electrification trend in heating systems.
Despite a slight dip in gross margins due to product mix variations and lower equipment sales,Watsco, Inc. (NYSE:WSO) strong cash flow and ongoing cost optimization initiatives position it for long-term growth. The company’s efforts to reduce SG&A expenses and improve operational efficiency will likely enhance profitability in the coming quarters, making Watsco, Inc. (NYSE:WSO) an attractive industrial distribution stock for investors.
07. 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.”
06. Resideo Technologies, Inc. (NYSE:REZI)
Number of Hedge Fund Holders: 33
Resideo Technologies, Inc. (NYSE:REZI) is a prominent player in the industrial distribution sector. The company’s global reach and diversified portfolio position it well within the distribution space, particularly through its ADI Global Distribution segment, which focuses on security, fire, access control, and smart home products. Furthermore, Resideo operates across two key segments: Products & Solutions and ADI Global Distribution, which cater to both commercial and residential markets, adding resilience to its business model.
In Q2 2024, Resideo Technologies, Inc. (NYSE:REZI) reported robust financial metrics, highlighting its strong fundamentals. Adjusted EBITDA surged to $175 million, exceeding expectations and representing significant growth from Q2 2023. This growth was driven by a 460 basis point improvement in the Products & Solutions segment, where gross margins climbed to 41%, showcasing strong operational efficiency. Resideo’s adjusted EBITDA margin of 24.8% further underscores the company’s ability to manage costs effectively, even in a challenging macroeconomic environment.
One of the standout developments for Resideo Technologies, Inc. (NYSE:REZI) in the quarter was the acquisition of Snap One, which expands its presence in the audiovisual and smart living markets. The integration is expected to yield $75 million in annual run-rate synergies by 2026, with $12 million expected in 2024 alone. This acquisition enhances Resideo’s product offerings and strengthens its distribution network, positioning the company for continued growth in the coming years.
Hedge fund interest in Resideo Technologies, Inc. (NYSE:REZI) has also increased, with 33 hedge funds holding stakes in the company as of Q2 2024, up from 26 in the previous quarter. This reflects growing confidence in Resideo Technologies, Inc. (NYSE:REZI) future performance, driven by its operational improvements and strategic acquisitions. Additionally, the company generated $77 million in free cash flow during the quarter, further enhancing its financial flexibility to pursue growth opportunities. With strong financial performance, operational efficiency, and strategic growth initiatives, Resideo Technologies, Inc. (NYSE:REZI) remains a compelling industrial distribution stock for investors looking for long-term value.
Ariel Focus Fund stated the following regarding Resideo Technologies, Inc. (NYSE:REZI) in its first quarter 2024 investor letter:
Additionally, supplier of residential thermal, comfort and security solutions, Resideo Technologies, Inc. (NYSE:REZI) advanced following a top- and bottom-line quarterly earnings beat. Despite a challenging macro environment and slower turnover in the housing market, stabilizing order rates and gross margin expansion aided share price appreciation. Additionally, management continues to return capital to shareholders through buybacks. In our view, the company’s best-in-class brand and vast distribution network create a narrow moat around the business resulting in high market share across its product portfolio. We believe REZI’s earnings potential is underappreciated and will be driven by a secular preference for more connected smart home solutions.
05. 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.”
04. Core & Main, Inc. (NYSE:CNM)
Number of Hedge Fund Holders: 44
Core & Main, Inc. (NYSE:CNM) is a key player in the industrial distribution space, primarily focused on water, wastewater, storm drainage, and fire protection products. As an industrial distribution stock, Core & Main, Inc. (NYSE:CNM) serves a wide range of municipalities, private water companies, and professional contractors across the U.S., making it a crucial part of infrastructure maintenance and development. With a client base spanning 60,000 customers and 350 branches, the company’s extensive footprint and diverse product portfolio position it as a strong candidate for investors looking to tap into the industrial distribution sector. However, it’s important to note that the number of hedge funds holding Core & Main, Inc. (NYSE:CNM) decreased to 44 in Q2 2024 from 55 in the previous quarter, signaling some retraction in institutional interest.
Despite missing earnings expectations in Q2 2024, reporting an EPS of $0.67 compared to the expected $0.74, Core & Main, Inc. (NYSE:CNM) still shows strong fundamentals that could make it a lucrative stock. The company continues to benefit from its strategic acquisitions, which have contributed to its top-line growth, including expanding its operations into Canada through the acquisition of HM Pipe Products. This new market opportunity adds around $5 billion in addressable market potential.
Core & Main, Inc. (NYSE:CNM) financial health also remains robust, with solid gross margins in Q2, driven by private label performance and synergies from its M&A activities. The company’s net sales increased, supported by a 48% rise in meter sales, a growing segment that underscores the firm’s capacity to innovate and meet evolving infrastructure demands.
The ongoing need for infrastructure modernization in the U.S., particularly in water systems, provides long-term growth potential for Core & Main, Inc. (NYSE:CNM). Its position as a leader in providing products that address water scarcity, quality, and infrastructure failures further solidifies its relevance in the market. With a fragmented $39 billion addressable market, the company has room to capture more market share and continue scaling its operations through organic growth and acquisitions. Overall, Core & Main, Inc. (NYSE:CNM) diversified product portfolio, growth through acquisitions, and focus on infrastructure modernization make it a compelling industrial distribution stock for long-term investors.
Polen U.S. Small Company Growth Strategy stated the following regarding Core & Main, Inc. (NYSE:CNM) in its first quarter 2024 investor letter:
“The top contributors to the Portfolio’s quarterly performance, both relative and absolute, were Wingstop, Core & Main, Inc. (NYSE:CNM), and AppFolio. Core & Main is an industrial distributor specializing in waterworks and fire protection, providing an extensive range of over 200,000 products in the water infrastructure market. The company’s fundamental business performance has been better than expected, and it continues to execute its disciplined M&A strategy very well. We view Core & Main as a high-quality business with numerous competitive advantages and reinvestment opportunities, supported by structural tailwinds given the need to repair and replace aging municipal water infrastructure.”
03. Beacon Roofing Supply, Inc. (NASDAQ:BECN)
Number of Hedge Fund Holders: 46
Beacon Roofing Supply, Inc. (NASDAQ:BECN) is a key player in the industrial distribution sector, specializing in the distribution of residential and non-residential roofing materials and complementary building products. The company serves a diverse customer base, including contractors, home builders, and retailers across the United States and Canada. With its broad portfolio of pitched and low-slope roofing materials, insulation products, and a wide range of tools and equipment, Beacon Roofing Supply, Inc. (NASDAQ:BECN) comprehensive offerings position it as an essential industrial distributor for construction and roofing needs.
Beacon Roofing Supply, Inc. (NASDAQ:BECN) is backed by growing institutional interest, with hedge fund holders increasing to 46 in the second quarter of 2024, up from 41 in the previous quarter. This signals confidence in the company’s long-term growth potential. Despite missing earnings expectations in Q2 2024, reporting an EPS of $2.32 compared to the expected $2.82, the fundamentals of the stock remain strong.
The company reported record net sales of nearly $2.7 billion, a 7% year-over-year increase, driven by price increases and acquisitions. Residential roofing sales rose by over 2%, with higher prices counteracting lower shipments in storm-affected regions. Acquisitions played a significant role in boosting the company’s growth, with recent purchases adding 4% to daily net sales. Beacon Roofing Supply, Inc. (NASDAQ:BECN) has been proactive in expanding its market presence, opening 13 new branches year-to-date and acquiring key companies like Roofers Mart of Southern California, which bolsters its commercial roofing business.
Beacon Roofing Supply, Inc. (NASDAQ:BECN) adjusted EBITDA margin reached double digits again, underscoring its profitability and operational efficiency. Gross margin came in at 25.6%, a slight improvement over the previous year. The company’s digital platform also saw impressive growth, with digital sales increasing by 22% year-over-year, enhancing customer loyalty and contributing to margin improvement by 150 basis points.
With continued investment in operational excellence, strategic acquisitions, and a focus on shareholder returns through initiatives like its share repurchase program, Beacon Roofing Supply, Inc. (NASDAQ:BECN) is ideally situtated for future growth, making it a strong industrial distribution stock to consider.
02. WESCO International, Inc. (NYSE:WCC)
Number of Hedge Fund Holders: 51
WESCO International, Inc. (NYSE:WCC) is a key player in the industrial distribution sector providing business-to-business distribution, logistics services, and supply chain solutions across various segments, including electrical and electronic solutions, communications and security solutions, and utility and broadband services. As of Q2 2024, WESCO is held by 51 hedge funds, a slight increase from 50 in the previous quarter, reflecting strong institutional confidence.
Despite missing earnings expectations in Q2 2024, reporting an EPS of $3.21 compared to the expected $3.48, WESCO International, Inc. (NYSE:WCC) remains a solid investment based on its strong fundamentals. The company generated a record $500 million in free cash flow in the first half of the year and is on track to achieve its full-year cash flow target of $800 million to $1 billion. This impressive cash generation enabled WESCO International, Inc. (NYSE:WCC) to repurchase $300 million of its stock in Q2, demonstrating its commitment to returning value to shareholders.
WESCO International, Inc. (NYSE:WCC) acquisition of two software companies, entroCIM and Storeroom Logix, aligns with its digital transformation strategy, which aims to enhance operational efficiencies, unlock new cross-selling opportunities, and integrate future acquisitions more seamlessly. These strategic moves will likely contribute to the company’s long-term EBITDA margin expansion goals.
In Q2 2024, WESCO International, Inc. (NYSE:WCC) experienced strong growth in its data center business, with sales increasing by high teens year-over-year, driven by the rising demand for AI and GenAI applications. Although the utility segment faced challenges due to customer destocking and project delays, the overall backlog remains healthy, supporting expectations for sales growth in the second half of the year.
WESCO International, Inc. (NYSE:WCC) consistent outperformance relative to its peers in the industrial distribution space, along with its ability to leverage its scale and expand its service offerings, positions the company well for continued growth. With strong free cash flow, strategic acquisitions, and healthy sector exposure, WESCO International, Inc. (NYSE:WCC) is a top choice for investors looking for a stable and innovative industrial distribution stock.
Diamond Hill Mid Cap Strategy stated the following regarding WESCO International, Inc. (NYSE:WCC) in its Q2 2024 investor letter:
“Other bottom contributors included Parker-Hannifin, WESCO International, Inc. (NYSE:WCC) and Regal Rexnord. Shares of leading industrial distributor WESCO (WCC) and electric motors and power transmission components manufacturer Regal Rexnord (RRX) were pressured against a backdrop of macroeconomic concerns which are seemingly making investors hesitant to own leveraged cyclical companies like WCC and RRX. However, we believe WCC remains well-positioned to capitalize on several secular tailwinds and to leverage its significant scale advantage to take market share and improve margins.”
01. 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.”
While we acknowledge the potential of FERG to grow, 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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