Cyclical stocks have a way of surprising on both ends. When things get bad, some sell-side analysts (and institutional investors) turn tail and declare that the sector can never come back. Of course, when things do recover and valuations start baking in "permanent prosperity" we are all treated to those memorable "it's different this time..." notes.
I certainly didn't think MSC Industrial (NYSE:MSM) was going to see the huge post-election run that it had. While the most manufacturing-exposed of the major distributors (which includes names like Grainger (NYSE:GWW) and Fastenal (NASDAQ:FAST)), the run in the sector already reflects a lot of optimism about the impact of lower corporate taxes, greater infrastructure spending, improved pricing, and a strong all-around recovery in the U.S. economy. I'm reluctant to completely bail out of a long-held position, but the valuation now seems to reflect a strong rebound with high single-digit FCF growth this year forward for quite some time.
A Significant Recovery Already Being Factored Into MSC Industrial Shares