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W.W. Grainger operates in the highly fragmented maintenance, repair, and operating product distribution market, where its over $16 billion of sales represents only 6% global market share (the company has 7% share in the United States and 4% in Canada). The growing prevalence of e-commerce has intensified the competitive environment because of more price transparency and increased access to a wider array of vendors, including Amazon Business, which has entered the mix. As consumer preference began to shift to online and electronic purchasing platforms, Grainger invested heavily in improving its e-commerce capabilities and restructuring its distribution network. It is the now the 11th-largest e-retailer in North America; it shrank its US branch network from 423 in 2010 to 246 in 2021 and added distribution centers in the US to support the growing amount of direct-to-customer shipments. Still, the company had work to do on its pricing. Grainger historically relied on a pricing model that applied contractual discounts to high list prices. Leading up to 2017, though, this model made it difficult to win new business. To address this problem, Grainger rolled out a more competitive pricing model. Lower prices hurt gross profit margins, but volume gains, especially among higher-margin spot buys and midsize accounts, have offset price reductions and helped the company meet its 12%-13% operating margin goal by 2019 (12.1% adjusted operating margin that year).
Brian Bernard

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Company Report

W.W. Grainger operates in the highly fragmented maintenance, repair, and operating product distribution market, where its over $16 billion of sales represents only 6% global market share (the company has 7% share in the United States and 4% in Canada). The growing prevalence of e-commerce has intensified the competitive environment because of more price transparency and increased access to a wider array of vendors, including Amazon Business, which has entered the mix. As consumer preference began to shift to online and electronic purchasing platforms, Grainger invested heavily in improving its e-commerce capabilities and restructuring its distribution network. It is the now the 11th-largest e-retailer in North America; it shrank its US branch network from 423 in 2010 to 246 in 2021 and added distribution centers in the US to support the growing amount of direct-to-customer shipments. Still, the company had work to do on its pricing. Grainger historically relied on a pricing model that applied contractual discounts to high list prices. Leading up to 2017, though, this model made it difficult to win new business. To address this problem, Grainger rolled out a more competitive pricing model. Lower prices hurt gross profit margins, but volume gains, especially among higher-margin spot buys and midsize accounts, have offset price reductions and helped the company meet its 12%-13% operating margin goal by 2019 (12.1% adjusted operating margin that year).
Brian Bernard
Company Report

Unlike other global contract manufacturing organizations, Samsung Biologics differentiates itself by focusing on biologics modalities. Biologics are large molecule treatments made from living cells with a higher degree of complexity compared with traditional chemically synthesized small molecule drugs. Biological products include antibodies, vaccines, gene therapies, and many other novel treatments, which are the focus of research and development spending for largely unmet medical needs. Given the interest in this pharmaceutical area, Samsung Biologics’ revenue has expanded at a compound annual growth rate of 48.5% for the past 9 years. We think Samsung Biologics can still enjoy the secular tailwind in demand for biologics in the next decade.
Yurou Zheng
Company Report

We believe Paccar will remain a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.
Matthew Young
Company Report

Sampo is an efficiently run Nordics-based personal lines insurer that tends to focus on improving its underwriting quality year on year—be that through holding on to customers for longer and therefore paying less in acquisition costs; be that through the digitalization of its operations and extraction of expenses; be that through scale and negotiation power with its partners such as BMW, Ford, Mercedes, Nissan, Nordea, Volkswagon, Volvia; or be that through an ability to select lower-cost customers in terms of claims, or customers that are willing to pay that little bit more in price. Sampo has proved this ability year on year and tends to invest around EUR 100 million a year to achieve this. We think the savings the company has generated from these investments have more than covered their cost and more than covered the returns the business was already generating. In other words, we believe these investments have been value-accretive.
Henry Heathfield
Company Report

Before 2016, the market had mostly viewed Johnson Controls as an automotive-parts company because about two thirds of its sales came from automakers. However, after merging with Tyco and spinning off its automotive seating business, now known as Adient, in late 2016, Johnson Controls has become a more profitable and less cyclical pure-play building technology firm that manufactures HVAC systems and controls, fire and security products, and building automation solutions.
Brian Bernard
Company Report

CNH Industrial provides customers with an extensive portfolio of off-highway products. We believe it will continue to be a top-two player in the agriculture industry. For generations, the company’s agriculture equipment has garnered intense brand loyalty among farmers. Customers value CNH’s high-quality and strong-performing products, in addition to its robust dealer network. In developed markets, CNH helps customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.
Brian Bernard
Company Report

We view Rockwell as the highest quality automation player on the west side of the Atlantic based on quality, breadth of offerings, and shrewd strategic partnerships. Today, it is one of the best-in-breed competitors seeking to gain a stronger foothold where technology meets traditional manufacturing, which Rockwell deems the Connected Enterprise.
Brian Bernard
Company Report

Deere offers customers an extensive portfolio of agriculture and construction equipment. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its leading brand recognition. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce their total cost of ownership through productivity and other efficiency enhancements.
Nicolas Owens
Company Report

Qiagen aims to help scientists and caregivers use biological samples to identify and solve problems related to DNA, RNA, and proteins, which should remain in high demand even after the pandemic, albeit probably at a reset rate following that unique event. Qiagen's roots are in products that help scientists prepare biological samples for various experiments, and sample preparation products account for nearly 35% of sales. Qiagen remains a key leader in this niche, and we expect Qiagen to continue to invest to maintain or improve in that business in the long run.
Julie Utterback
Company Report

We expect the medium and long-term strategic focus for Car Group to revolve around functional and geographic expansion.
Roy Van Keulen
Company Report

We believe Caterpillar will continue to be the leader in the global heavy machinery market with an extensive portfolio of construction, mining, energy, and transportation products. For nearly a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its position as one of the world’s most valuable brands. High-quality, extremely reliable, and efficient products underpin the strong brand. Customers also value Caterpillar’s ability to lower the total cost of ownership.
Spencer Liberman
Company Report

We believe Allison will continue to be the top supplier of fully automatic truck transmissions, despite increasing regulation of emissions by government authorities. The company dominates the medium-duty market, commanding approximately 80% share in some verticals (school buses, Class 6-7 trucks, and Class 8 straight trucks). Allison's strong brand is underpinned by its high-performing and extremely durable transmissions. This has led to the company benefiting from pricing power.
David Whiston
Company Report

We think United Rentals will continue to be the top player in the North American equipment rental industry with 15% share. As the industry leader, the company provides customers with better equipment availability and reliability than smaller players. However, many of the equipment brands found in United Rentals’ product catalog can also be found with competitors, such as Sunbelt Rentals (owned by Ashtead), Herc, and thousands of other rental companies across North America.
David Whiston
Company Report

Because of its intangible assets, including brand strength and intellectual property, Porsche has a narrow economic moat rating. The brand is synonymous with motorsports and highly engineered, fun to drive, sports cars. Brand strength has enabled a premium to luxury price range across Porsche's product portfolio, while intellectual property supports the brand image from racing-inspired engineering and well-executed product. Porsche is one of only a handful of automakers to which we assign an economic moat.
Brian Bernard
Company Report

Kering Group’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for over 50% of revenue and almost 70% of the company's earnings, but brands like Saint Laurent (over EUR 3 billion revenue), Bottega Veneta, and Balenciaga are also set to support growth in future.
Jelena Sokolova
Company Report

We think Lululemon has a solid plan to expand its product assortment and geographic reach while building its core business. While there are many firms looking to compete in its categories, we believe Lululemon benefits from the athleisure fashion trend and will continue to achieve premium pricing due to the brand’s popularity and the styling and quality of its products. Our narrow moat rating is based on the company's intangible brand asset.
David Swartz
Company Report

LKQ is the top alternative vehicle-parts provider to repair shops in North America and Europe. We believe the company benefits from scale-driven cost advantages in its business. Customers value LKQ’s consistent parts availability across a wide range of products and quick delivery. LKQ helps customers complete repairs faster, improving productivity. We think the company’s strong distribution network will support its ability to keep order fulfillment rates high in both aftermarket and salvage products.
Krzysztof Smalec
Company Report

Super Retail Group operates in Australia and New Zealand, selling automotive parts and accessories, sporting goods, and outdoor leisure equipment. The group is the market leader in all three segments in Australia, with about 20%-30% market share in auto parts, camping equipment, and sporting goods retailing. However, we believe formidable competition will constrain operating margins as the firm competes on price to maintain market share.
Johannes Faul

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