Anixter International Inc. (AXE), Rockwell Automation (ROK), Watsco Inc (WSO): Watch Out for Possible “Wholesale” Value Traps

Overall, the fact that Rockwell Automation (NYSE:ROK)’s business model appears to be all about helping other businesses presents a sturdy moat of patents and contracts. As most every business seeks to streamline itself, Rockwell Automation (NYSE:ROK) appears to be a fairly solid investment moving forward.

Chill out for a second

Watsco Inc (NYSE:WSO) is on an aggressive campaign to cool the world. The company has moved through much of the US, and a few years ago began a partnership with Carrier to work in Puerto Rico and much of Latin America. Between refrigeration-unit brands like Frigidaire, Whirlpool and Comfortmaker, Watsco Inc (NYSE:WSO)’s got a lock on keeping people and goods cool. Being a cooling business that’s headquartered in Florida and dealing in tropical zones, this sounds like a highly profitable gig.

Unfortunately, there are issues. Watsco Inc (NYSE:WSO)’s growth has come at the cost of diminished profit margins. The company is confident enough to pay a 1.1% dividend, even though the overall profit margins are only 3.1%. This could spell trouble if the company makes a misstep into one of its new markets. Since Watsco Inc (NYSE:WSO) is trading at around 30 times its earnings at the moment, I would recommend you keep your eye on the company and watch for either a sizable dip in the price or a strong improvement in earnings.

The Foolish bottom line

There are values to be had in the wholesale-electronics business. However, contracts and major labels aren’t everything. Some of these companies are better bargains than others, and some might need to be dropped in exchange for something shinier.

The article Watch Out for Possible “Wholesale” Value Traps originally appeared on Fool.com and is written by Chris Hodge.

Chris Hodge has no position in any stocks mentioned. The Motley Fool recommends Watsco. Chris is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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