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 Core & Main, Inc. (NYSE:CNM) 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).

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.”

Overall CNM ranks 4th on our list of the best industrial distribution stocks to buy. While we acknowledge the potential of CNM 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 CNM 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.