Fastenal Company (FAST), W.W. Grainger, Inc. (GWW): The Construction Business Is One of the Best Economic Recovery Plays

A new threat?

One interesting threat to Fastenal’s business is Amazon.com, Inc. (NASDAQ:AMZN)’s entry into the construction supply business with its launch of AmazonSupply just over a year ago. While still in its early stages, this new venture is certainly worth keeping an eye on. While I have no delusions that bricks-and-mortar retailers such as Fastenal will be able to effectively price-match with Amazon’s amazing supply chain efficiencies, I believe that Fastenal Company (NASDAQ:FAST)’s vending-machine concept buys them some degree of immunity from this. While Amazon’s “prime” customers can get free two-day shipping on all orders for just $79 per year, having instant access to the construction materials you need while on a job site beats two-day delivery every time.

W.W. Grainger: An alternative

W.W. Grainger, Inc. (NYSE:GWW) is another option to play the economic recovery through construction. While virtually all construction-related companies are trading at premium valuations, they are also expected to produce very high growth over the next several years, and Grainger is no exception.

W.W. Grainger, Inc. (NYSE:GWW) is the world’s largest distributor of maintenance and industrial supplies, such as pumps, tools, motors, and safety equipment. Similarly to Fastenal, the company has an excellent financial position. Although it does have some debt, the cash on its balance sheet effectively makes up for it. W.W. Grainger, Inc. (NYSE:GWW) trades for a slightly lower valuation of 26.4 times TTM earnings, which are projected to rise at around 13% going forward.

Conclusion

It is hard to go wrong with any construction supply company in the current economic environment, especially if you believe (as I do) that the recovery will continue for several more years. I give the slight edge long-term to Fastenal Company (NASDAQ:FAST)due to its vending machine initiative, which should be very effective at keeping online competitors from having too much of an effect on their bottom line.

The article The Construction Business Is One of the Best Economic Recovery Plays originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Matthew 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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