Kwame Webb, Morningstar Research Equity Analyst, highlights two industrial distribution companies Grainger and Fastenal, the firms supply factories and workshops with around one million products, everything from welding masks to mops and buckets. Their large stock of products offer their customers a wide array of diverse needs. According to Kwame Webb many companies think it’s more effective to use an industrial distributor than to maintain relationships with thousands of different suppliers.

Kwame Webb looks at the cost advantage and scales of economy on both procurement and transportation, which allow them to be more cost-efficient than their 150,000 suppliers.

As the two firms have become bigger, customers have realised that if they use Grainger or Fastenal they don't need a procurement department and they don't need a salesforce. Currently, both stocks have a 3-star rating, from the Morningstar rating for stocks. However, Grainger trades at the larger discount according to Morningstar’s fair value estimate.