Hedge Funds Like Fastenal

Hedge funds know which sectors are hot and which stocks are undervalued. One of the stocks that hedge funds are investing in right now is Fastenal Company (FAST). Fastenal had 2,490 store locations located in the United States, China, The Netherlands, United Kingdom, Puerto Rico, Canada, Mexico, Singapore, Hungary and Malaysia. International diversification is good for investors. FAST has a total market value of $10.59B and offers a dividend yield of 1. 6%. Hedge fund billionaire Steven Cohen was the biggest investor in Fastenal. He had $60+ million invested in the stock. Other hedge fund billionaire Jim Simons initiated a brand new $12 million of FAST stocks during the second quarter. Hedge fund billionaire Ray Dalio also had $27 million invested in the stock and he increased his position by 245% during the second quarter. In this article, we are going to take a closer look at Fastenal and its comparable companies, including MSC Industrial Direct Co (MSM), W. W. Grainge r Inc (GWW), and The Sherwin-Williams Company (SHW) to determine which stocks promise higher returns for investors. Earnings: Fastenal reported revenues of $727 million for the third quarter of 2011. Second quarter operating income rose 3.4% to $155 million. The company has $137 million in net cash on its balance sheet. Its EPS is $1.19 during the past 12 months. Fastenal is expected to earn $1.20 in 2011 and $1.37 in 2012. The stock recently traded at $36.94. Its current PE ratio is 31.76. Volatility: Volatility is generally used as a measure of risk. Fastenals beta is 0.95, MSCs beta is 1.20, Graingers beta is 0.87, and Sherwin-Williams beta is 0.57. Fastenals beta is not much different than MSC and Grainger. Sherwin-Williams has surprisingly the lowest beta in this group. Valuation: Fastenals earnings are expected to grow at 17.5% over the next five years. Its PE ratio using its 2014 earnings is around 19.53. MSCs earnings are expected grow at 18.6% over the next five years and its PE ratio using 2014 earnings is 10.86. Grainger is expected to grow at 13.66% and its PE using expected earnings in 2014 is 13.54. Sherwin-Williams expected earnings growth is 10.29% and its corresponding PE is 12.50. Fastenal looks overvalued compared to other stocks in the group. It has the highest PE ratio using expected earnings in 2014. Its current PE ratio, 31.76, is also much higher than the industry average of 12.30. MSC is trading at a discount compared to other companies as long as the assumption on the growth rate is accurate. Insider Ownership: Stocks purchased by insiders tend to outperform the market on the average. Fastenal was purchased by three insiders over the past six months. The most recent insider purchase is from its Executive Vice President James Jansen, who bought 1000 shares at $30.73 on August 10. Jansen also purchased 4,000 shares in total on July 21 at $34.28 and $34.38. Nicholas Lindquist,

another Executive VP of Fastenal, also purchased thousands shares of the stock in May at $32.55. Also, Michael Ancius, Director of the company, bought the stock at around $30 per share in early August. It seems that these people know when to buy their companys stock as Fastenal is currently traded at about $36 per share. The other three stocks do not have insider purchases during the same period. Hedge Fund Purchases: Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on the average. Sherwin-Williams was the most popular stock among hedge funds at the end of second quarter. It was held by 21 hedge fund managers, including Andreas Halvorsen, Steven Cohen and Ken Griffin. MSC was the second famous stock with eighteen hedge funds bullish about it. Big names include Ken Fisher, Ken Griffin, Ray Dalio, Jim Simons, and Israel Englander. Grainger and Fastenal were less popular compared to MSC and SWH. Fourteen hedge funds were bullish about Grainger and eleven were bullish about Fastenal. Overall our analysis points out that Fastenal is overvalued compared to other stocks in the group, while MSC Industrial is undervalued. Strong hedge fund interests in MSC stocks also indicate some form of perceived value. Although there are three insiders purchased Fastenal during the past six months, the stock price has increased several dollars since their purchases and the scope for share prices to rise further looks limited. However, as Fastenal recently announced another quarter of strong growth, we recommend a HOLD for FAST and we urge investors to do an in-depth analysis of the stock for their portfolios. Hedge Fund