W.W. Grainger Inc.: Almost 1 Million Reasons To Buy

Apr.17.13 | About: W.W. Grainger, (GWW)

One of the largest holdings at Gunderson Capital Mgt. continues to be WW Grainger Inc. (NYSE:GWW). Here is the reason why …

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Data from Best Stocks Now app

The Lake Forest, Illinois large-cap company distributes over 900,000 tools, lighting, plumbing, and other maintenance products through 368 branches and 15 distribution centers.

I can hardly wait until my Grainger catalog arrives in the mail every year. I especially like the plumbing fixture pictures and accompanying descriptions. Now this is compelling reading!

As an investor however, I really don't care how exciting the company's wordy catalog is. I care more about making money in the stock. Here are the performance numbers for the company over the years:

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Data from Best Stocks Now

As you can see, the stock has outpaced the S&P 500 by a wide margin over the last 3, 5, and 10 years. Also note that the stock was only down 8.2% in 2008, while the market was down 38.5%.

I guess folks still need widgets for this and that despite a financial crisis.

When I compare the performance of Grainger against the other 3,300 stocks that I track, it earns a performance grade of "A-". Not bad for a widget distributor.

I got back into the stock a few months back after being out of it for about one year. It does not look like I missed much as the stock has underperformed the market over the last twelve months for a change.

I got back into the stock when it broke through resistance about two months ago.

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In addition to a stock that has outperformed the market over the years; I also like a healthy stock chart.

I don't like buying stocks in downtrends. I don't especially care for sideways trends and I get really nervous about extended charts that are beginning to roll over.

I like to buy good stocks like Grainger when they are breaking out. The breakouts obviously don't always follow through, but I feel that the probabilities are in my favor.

If the breakout follows through and begins a new uptrend, then I am in business. I ride it for all it is worth-hopefully for months, sometimes even years.

I also have a sell discipline, but I will cover that in other articles.

It also helps that Grainger is a large-cap dividend paying stock. This is the number four ranked asset class at the current time.

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Data from Best Stocks Now

In addition to performance and a healthy stock chart, I also demand a decent value. I have seen too many high PE momentum darlings crash and burn over the years.

Let's have a look at the current valuation of Grainger.

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Data from Best Stocks Now app

The stock is currently trading at 16.9X forward earnings. It is expected to grow by 14.4% per year over the next five years. This makes for a PEG ratio of 1.17 which is not bad.

I then take next year's EPS estimate and extrapolate it out over the next five years at 14.4% per year. I then apply a multiple that I think is appropriate and come up with a five-year target price of $412 per year. This gives me almost 90% upside potential and a value grade of "A-".

Grainger is currently one of my highest rated large-cap conservative stocks. As the market gets a bit more defensive here, it should continue to do well. Speaking of doing well, I love the earnings that the company reported on Tuesday!

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Disclosure: I am long GWW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.