GGG

I have been nervous about GGG due to its housing exposure but recently I had a thought -- I remembered that the company's worst performance was during Q1 when GDP growth was near 1%. Q2 saw a rebound in the company's results and a reacceleration in GDP growth back over 3%. Housing has remained weak but their overall results jumped in Q2 vs. Q1.

This suggests they are more exposed to GDP growth then to housing. Wow. If true, that makes them a bargain because I believe GDP growth is going to be Ok -- certainly a lot better than the growth of housing.

The other thing I noticed is that the current revenue estimates for GGG for the next 4-6 quarters are only assuming mid single digit growth -- the 5-7% kind of range. Seeing those numbers got me thinking about the different segments of their business. If you assume the industrials segment provides mid teens growth, then the US contractor business can shrink 20% or more and they will still hit the overall numbers. That's comforting to know that the estimates are THAT conservative. reassures me that they are going to hit the numbers.

GGG is selling for less than 16X 2008 EPS estimates. Not bad for a company with a mid 40's ROE, 30% ROA, 8-10% revenue growth, strong free cash flow, etc. its a keeper.