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Mar 25, 2023

Zacks Investment Ideas feature highlights: Graco, Badger Meter and W.W. Grainger

Chicago, IL – May 31, 2023 – Today, Zacks Investment Ideas feature highlights

Chicago, IL – May 31, 2023 – Today, Zacks Investment Ideas feature highlights Graco GGG, Badger Meter BMI and W.W. Grainger GWW.

Some of my favorite stocks are hidden gems that often escape media attention, yet consistently deliver remarkable returns over multiple decades. Even better is when they provide essential goods and services, often overlooked by the average person, yet crucial for the smooth functioning of society. In that case you know the business should be around for a long time.

Graco, Badger Meter and W.W. Grainger all have high Zacks Ranks, market-beating returns and products that will remain critical across sectors for the foreseeable future. Each of these stocks have outperformed the market over the last one-year, five-year, and 20-year period.

Graco

Graco is a leading industrial machinery company known for its innovative fluid handling systems and equipment. With a history dating back to 1926, Graco has established itself as a trusted provider of precision products across various industries. The company specializes in manufacturing pumps, sprayers, dispensing equipment, and other solutions that cater to sectors such as manufacturing, construction, rail, automotive, and healthcare.

Over the last 20 years, Graco stock has compounded at an annual rate of 15%, considerably outperforming the broad market, and 15x’ing investors’ money over that period. GGG also offers a dividend yield of 1.2%, which it has consistently grown since going public. Over the last five years the dividend payment has increased by 11.2% annually.

Boasting a Zacks Rank #1 (Strong Buy), analysts have unanimously upgraded earnings expectations for Graco. Current quarter earnings estimates have been revised higher by nearly 10% over the last two months and are expected to show a 14.8% YoY increase. FY23 earnings were revised 11% higher and are projected to climb 16.4% YoY.

Over the last 30 years, sales have grown at a steady pace from $323 million to $2.2 billion. With projections of 5% YoY sales growth in FY23, GGG continues to grow right in line with its long-term average.

Graco is trading at a one-year forward earnings multiple of 25.2x, which is above the market average of 19.5x, and just above its 10-year median of 24.4x. While that is a premium valuation, GGG has managed to grow its EPS 17% annually over the last 15 years, an incredibly impressive feat.

Badger Meter

Incorporated in 1905 Badger Meter provides flow measurement, control, and communications solutions, serving water and gas utilities, municipalities, and industrial customers worldwide. The company's products measure water, oil, chemicals, and other fluids, and are known for accuracy, long-lasting durability and for providing valuable and timely measurement data.

Badger Meter's product lines fall into two categories — sales of water meters, radios, and related technologies to municipal water utilities (municipal water) and sales of meters, valves, and other products for industrial applications in water, wastewater, and other industries (flow instrumentation).

Over the last twenty years BMI stock has compounded at an annual rate of 21.3%. That means investor money has nearly 50x’d over that time.

From 1993 to today, sales have grown from $84 million to $592 million, which is an annual growth rate of 7%. In FY23 sales are projected to grow 14.4%, significantly outpacing the annual growth rate.

Additionally, FY23 earnings have been revised 4.7% higher over the last two months and are expected to show a 19% YoY increase. With upward trending earnings revisions, BMI sports a Zacks Rank #1 (Strong Buy).

Badger Meter trades at an uber-premium 51.7x one-year forward earnings. This is well above the market average, and above its 10-year median of 33.5x. However, in the last three years BMI stock has more than doubled, while its earnings multiple remained above 40x the whole time, showing investors remain willing to pay up for the pump manufacturer.

W.W. Grainger

Founded in 1928, W.W. Grainger is a business-to-business distributor of maintenance, repair and operating (MRO) products and services. GWW's operations are primarily in North America, Japan, and the U.K. Its customers represent a wide array of industries including government, manufacturing, transportation, commercial and contractors. W.W. Grainger's products include material-handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, and metalworking tools.

GWW is what investors call a dividend king as it has raised its dividend every year for the last 51 years. It currently has a dividend yield of 1.1% and has raised the payment by an average of 5.9% annually over the last five years.

With a Zacks Rank #2 (Buy), analysts are consistently revising GWW's earnings estimates higher. Current quarterly earnings have been revised 6% higher over the last two months and are expected to climb 24% YoY. FY23 earnings have been revised 6.8% higher and are projected to grow 19.8% YoY.

W.W. Grainger is trading at a one-year forward earnings multiple of 18.6x, which is below the market average, and below its 10-year median of 19.5x. Considering EPS have nearly doubled over the past five years from $17.29 to $32.21, it wouldn't be surprising to see some multiple expansion in GWW. However, even if it maintains its current valuation, it is still a compelling investment.

Some of the best stocks in the world are the ones you don't hear about very often. Investors don't need to find the "next great thing," instead they can look for companies that produce seemingly mundane things like water pumps and have their money 50x. Interestingly, neither BMI nor GGG are held in any major market ETFs, meaning they may still be under owned by institutions. So, they may soon become target investments for large money managers and push the stocks even higher.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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