Is Fastenal Company (FAST) the Best Industrial Distribution Stock to Buy Now?

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 Fastenal Company (NASDAQ:FAST) 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 team of construction workers with their order of industrial supplies, on a construction site.

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.

Overall FAST ranks 9th on our list of the best industrial distribution stocks to buy. While we acknowledge the potential of FAST 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 FAST 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.