Is There Real Value in These 7 Distribution Services Companies? Part 6


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 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.