Top 5 Industrial Supplies Stocks of 2016 (GWW, FAST)
Industrial supply stocks have outperformed the broader market in the first half of 2016. Global manufacturing has shown signs of a modest rebound, thanks to an uptick in commodity prices and a softening U.S. dollar. The Institute of Supply Management’s (ISM) Manufacturing Index was above 50 in July 2016, indicating an expansion of economic activity.
These are some of the top performing industrial supply stocks of 2016.
W.W. Grainger Inc.
W.W. Grainger Inc. (NYSE: GWW) is a distributor of maintenance, repair and operating supplies. Its products include motors, lighting, tools, pumps and electrical equipment. The company has operations in the United States, Canada, Europe, Latin America and Asia. W.W. Grainger’s net income growth over the past three years, as of 2016, had been 3.7%, overshadowing the industrial distribution industry average of 1.6%. The stock was performing well, with a 15.81% year-to-date (YTD) return as of Aug. 16, 2016. It is trading at $231, just 3.73% below its 52-week high of $239.95. The stock has a $14 billion market capitalization and dividend yield of 2.07%.
Founded in 1967, Fastenal Co. (NASDAQ: FAST) provides wholesale distribution of industrial and construction supplies to customers in the United States, Canada, Mexico, Puerto Rico, China and the Netherlands. The company’s strategy of placing stores in close proximity to its distribution centers creates a competitive advantage, helping increase profitability; it intends to open between 60 and 75 additional stores in 2016. Fastenal has a low debt-to-equity (D/E) ratio of 0.2 and a healthy trailing 12-month operating margin of 20.7%, outperforming the industrial distribution industry averages of 1.2 and 6.5%, respectively. The stock has a market cap of $12.6 billion and offers investors a 2.71% dividend yield. Fastenal had a YTD return of 8.72% as of Aug. 16, 2016.
Cintas Corporation (NASDAQ: CTAS) provides corporate uniforms, as well as other business services, including entrance mats, restroom cleaning services and supplies, carpet, industrial floor cleaning, and fire protection products. In August 2016, Cintas announced that it was acquiring competitor G&K Services; this is likely to increase Cintas' market share. The company had beaten analysts’ earnings expectations four out of the last seven quarters through the fiscal fourth quarter of 2016. Cintas is reasonably valued, with a forward price-earnings (P/E) ratio of 23.9. It has a market cap of $11.8 billion and pays investors a dividend yield of 0.93%. The stock closed at a lifetime high of $112.99 as of Aug. 16, 2016. It has a YTD return of 24.1%, outperforming the Standard and Poor’s (S&P) 500 Index’s YTD return by roughly 18%.
MSC Industrial Direct
MSC Industrial Direct Co. Inc. (NYSE: MSM) directly supplies industrial customers with a range of metalworking and maintenance and repair products, such as cutting tools, measuring instruments and electrical supplies. It had a market cap of $4.5 billion as of August 2016. The Melville, New York-based company posted 2016 fiscal third quarter earnings per share (EPS) of $1.05, exceeding Wall Street expectations of $1 per share. MSC Industrial Direct uses minimal shareholder equity to finance its assets, with a low D/E ratio of 0.1. It also has a respectable trailing 12-month operating margin of 13.1%, roughly double that of its peers in the industrial distribution industry. Investors receive a 2.35% yield. The stock had appreciated an impressive 32.42% YTD as of Aug. 16, 2016.
WESCO International Inc. (NYSE: WCC) offers supply chain management and logistics services for the industrial, construction, commercial and government markets. The company’s 2016 second quarter earnings increased 38.3% over the previous quarter and 4.9% on a year-over-year (YoY) basis. WESCO International is cheaper than its peers, with a P/E ratio of 14.5. The industry average is 17.7. Investors have enjoyed a strong YTD return of 34.96% as of Aug. 16, 2016. The stock is currently trading at $58.95, toward the top of its 52-week range of $34 to $62.66. WESCO International has a market cap of $2.5 billion.