Is There Real Value In These 7 Distribution Services Companies?

As I stated in previous articles in this series, my primary objective is to provide the reader with a clear perspective of just how different individual stocks are and how different companies operating in different sectors are. Consequently, I will be covering every sector that FactSet covers.

As different as each of these sectors are, the one common theme that I am attempting to include is identifying stocks in each sector that appear attractively valued. However, the reader should understand that valuation is a multifaceted concept. As it relates to these articles, I am simply looking at a valuation as it relates mostly to historical norms based on operating earnings and to a lesser extent on expectations of future earnings.

With that said, I believe the reader should also recognize that correctly forecasting future earnings growth is a major key to long-term investment success. On the other hand, investors should not naïvely believe that they can forecast future earnings with perfect precision. That would be impossible except by chance. The best that we can do is expect our forecasts to be within a reasonable range of accuracy. This is an important concept when evaluating various sectors and subsectors within the market universe.

My point being that some sectors facilitate forecasting accuracy better than others – and vice versa.In the case of distribution services, generally forecasting future operating results is difficult or tenuous at best. This is due to the cyclical nature of many of the companies operating in the distribution services businesses. However, even though many of the companies in this sector are cyclical, they tend to remain profitable even during weaker times. Moreover, as you will see below, the companies I am covering in this sector tend to rebound strongly when they come out of weaker economic times.

Furthermore, there were only 169 companies out of almost 19,000 that comprise the Distribution Services Sector. Moreover, there were only 7 that I considered attractively valued, and I found no companies in the subsector Food Distributors that I considered worthy of mention based on valuation.

A Sector By Sector Review

This is part 6 of a series where I have conducted a simple screening looking for value over the overall market based on industry classifications and subindustry classifications reported by FactSet Research Systems, Inc. In part 1 found here,  I covered the consumer services sector. In part 2 found here, I covered the Communication Sector. In part 3 found here, I covered the Consumer Durables Sector and its many diverse subsectors. In part 4 found here,  I covered Consumer Nondurables. In part 5 found here, I covered companies in the Consumer Services Sector. In this part 6 will be covering the Distribution Services Sector.

In each article in this series, I provide a listing of screened research candidates from each of the following industry sectors, the sector I’m covering in this article is marked in green: 

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Disclosure: Long ABC,CAH,MCK

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the ...

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Alexander Straub 8 months ago Member's comment

Chuck, thanks for this excellent article. I'm interested in CAH and ARW so this was a good read. I'm aiming to do a bit more due diligence on these picks before moving forward with them.