Big Moat Stocks

Phil’s recent post on commodities is useful since we’re taking a look at Fastenal because Fastenal sells a lot of products that can be considered commodities. Go take a look at the left side of the Fastenal home page and you’ll see items such as screws, nuts, bolts, washers, plugs and receptacles. These are all items that have a standard configuration and don’t differ between manufacturers. This leaves the distributor in the position of competing on price. So why would we want to own Fastenal?

The answer lies in the value added services provided by Fastenal. Take a look at their services page to get an idea of what they do that adds more value to the business and probably has a much better profit margin. Another biggie is that Fastenal is leveraging their experience as a distributor who manages a huge amount of inventory to provide vendor managed inventory services to large accounts. This type of outsourcing provides a win-win for all while boosting margin by guaranteeing the sale of product and a high margin service.