3 Stocks to Watch in Commercial Supplies

Have you ever seen someone working at a job with tools? OK, that's a silly question. But here's one that's not -- where did those people get their tools? You and I go to the local hardware store, but commercial businesses often go somewhere else. And providing commercial supplies is a really big business. Three stocks to watch in the commercial supplies space include W.W. Grainger , Snap-on Incorporated , and, more from the manufacturing side of things, Stanley Black & Decker .

We got that ...Although the company has been around since the Great Depression, W.W. Grainger isn't probably a name you know. It describes itself as selling "a broad selection of maintenance, repair, and operating supplies and other related products and services." If you go the company's website, you'll see that the list of products includes everything from abrasives to lab supplies to welding equipment. In other words, if you need something, Grainger can probably get it for you.

A Grainger distribution facility. Source: Grainger.

The company's main market is the United States, which accounts for around 80% of its revenues. Canada provides another 10% or so. In the United States, Grainger estimates it has over 1.2 million customers, ranging from mom-and-pop shops to giant corporations, all of which rely on the company to provide them, in a timely and helpful fashion, with the parts, tools, and supplies they need to keep running.

And from the looks of things, Grainger has been up to the challenge. Although the top line dipped slightly in 2009, at the end of the 2007-to-2009 recession, it has otherwise been heading up every year for the past decade. The dividend, meanwhile, didn't skip a beat, increasing every year -- even during the recession. If you're looking for a commercial supply company, Grainger has to be on your list.

This business is a snapSnap-on bills itself as a "leading global innovator, manufacturer, and marketer of tools, equipment, diagnostics, repair information, and systems solutions for professional users performing critical tasks." In other words it sells a lot of the same stuff that Grainger does to basically the same kinds of clients. In fact, Snap-on has been in business since before the Great Depression.

Snap-on generates about 65% of its revenue from the United States, with the rest coming from one of the roughly 130 other countries in which it operates. That said, Europe, taken as a region, accounts for around 20% of sales. But if you're looking for a little more global exposure than Grainger offers, Snap-on would be a decent option.

That foreign exposure, however, means you'll need to look further than the United States to get a handle on the company's prospects. For example, the top line dipped in 2009 and took two years to recover to previous highs. Dividend growth stalled for a year in there, too. That soft patch was probably driven by the mixed economic recoveries in Europe, where some nations bounced back quickly while others took much longer.

Power tools! Source: Black & Decker.

The tool makerThere's another way to look at the commercial supply space, however, and that's where Stanley Black & Decker comes in. Although both Grainger and Snap-on have their own private-label product lines, they sell tools and such made by others as well. Stanley's products would probably be on that list. Stanely's product list includes tools, doors and locks, and security systems. The key difference is that its main business is making things, not selling them to end users.

The company's revenues are even more diverse than those of the two distributors, with only about 50% coming from the United States, 25% from Europe, 17% from emerging markets, and the rest from, well, the rest of the world. Emerging-market exposure has been a key focus of management in recent years, with the goal of getting that number up to 20%.

The thing to watch at this tool maker, however, is acquisitions. For example, the name is an amalgam of Stanley and Black & Decker, formerly two of the best-known tool brands that merged coming out of the 2007-to-2009 recession. And while that was a notable deal, it's far from the only one. The company has been pretty aggressively using bolt-on acquisitions, and larger ones, to expand its business in recent years.

Tools for the makersCommercial supplies may sound like a boring industry, but it's huge and more exciting than it first appears. If you're looking at the space, Grainger and Snap-on are two of the fragmented industry's leading names. That said, if you want to avoid the retail side of the business, you might want to look at Stanley Black & Decker, which focuses more on making things then selling them. And don't forget the global nature of this business, since companies around the world need supplies to keep business humming along, which is a big part of what makes these three companies worth watching in the commercial supplies industry.

The article 3 Stocks to Watch in Commercial Supplies originally appeared on Fool.com.

Reuben Brewer has no position in any stocks mentioned and tends to hurt himself while using power tools. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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