Under the Radar: Grainger Sells Stability

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Some of the best investments are in the most boring areas of business. But boring companies tend to offer stability and high profit margins. Here is a mid-cap "facilities maintenance products" distributor that fits the bill.

Lake Forest, Ill.-based WW Grainger ( GWW) was founded in 1927 as a wholesale electric motor distributor. Its first catalog, the "Motor Book," had eight pages of product information. Today, Grainger boasts a lineup of 800,000 items. It holds about 4% of the $140 billion facilities maintenance market.

TheStreet.com Ratings

What are facilities maintenance products? They're things you see every day, like fire extinguishers, flashlights, plugs, WD-40 and hammers. The company sells products for 3M ( MMM), Black & Decker ( BDK) and General Electric ( GE) through its 10 Web sites, 617 retail locations and 18 distribution centers worldwide.

The company has taken a hit during the recession as construction, business and consumer spending slumped. During the first quarter, revenue fell 12% to $1.46 billion as net income decreased 16% to $96 million. But light bulbs are still burning out and things are still breaking, so the company has some resilience.

Grainger is big on "green" products, such as Energy Star, that reduce costs and promote sustainability. And as our country attempts to shore up its balance sheet, these products have added thrift appeal. Grainger's May sales report didn't include many positive adjectives. But there are signs that things could be turning around.

March daily sales were off 12% from a year earlier, and things got even worse in April. But May indicated a deceleration, and sales fell just 10%. When stimulus projects ramp up and construction rebounds, Grainger is poised for growth.

The company has an ideal financial position, particularly considering its size. With $257 million of cash and $530 million in debt, Grainger boasts a quick ratio of 1.43 and a debt-to-equity ratio of just 0.27. The cash balance has more than doubled since last year's first quarter. And the net margin stands firm at 6.5%.

At a price-to-earnings ratio of about 14, Grainger is fairly priced relative to peers in the trading and distribution industry. The stock offers a safe play on infrastructure growth. And its dividend, at 2.27%, has increased for 37 consecutive years.

TheStreet.com Ratings gives Grainger a "buy" recommendation.

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.