Despite historic highs, this stock still holds value

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I I’ve been looking for something to buy for a while that can benefit from the continued evolution into what has become the “Internet of Things”, the growing trend to make everything connected and “smart”. However, I encountered a catch. Stocks that match the bill mostly fall into one of two camps: newcomers struggling to gain a foothold and established companies that dominate the market, but whose share price already reflects this. It doesn’t match my favorite style.

When it comes to stock picking, I tend to favor the outsider. I look for stocks that are depreciating, either because of a temporary problem that seems to be about to end, or because they have been dragged down by an underperforming market sector, or because wisdom conventional is negative, even if the actual results are positive. I do this, not because I feel the need to be different or to show how smarter I am than the next person, but simply because choosing actions, and negotiating in general, is about identifying situations where there are more advantages than disadvantages.

This makes stocks that have posted significant recent gains less attractive. At some point you know there will be a setback, just because nothing is moving in a straight line for a long time. There is a chance that will come shortly after your purchase and leave you in trouble from the start, and there is the problem of where to set a stop-loss in this situation. Pullbacks happen all the time, but when does a pullback become a reversal?

Sometimes, however, the long-term outlook for a stock is so good that none of it matters. This is how I feel about Rockwell Automation (ROK) right now.

As you can see, the ROK is anything but knocked down. It has gained about fifty percent from the 52-week low about a year ago and has climbed after gains earlier this week. It also doesn’t seem like there is much value when it comes to P / E’s. The front and rear multiples of 29 and 33 aren’t excessive, but they seem to suit a mature company and fully value the stock, until you factor in the nature of the industry and how Rockwell is performing at the over the past two years.

The Internet of Things revolution has only just begun and the potential is still huge. Rockwell has managed to get more than his share of that so far, and even the much-talked-about chip shortage hasn’t slowed him down. Tuesday’s earnings report was the seventh straight beat in the company’s estimates, and given that they appear to have decent control over their supply chain, there’s likely more of the same to come.

If this is correct, then the current rating and performance is almost irrelevant. Given the history of underestimation by Wall Street analysts, the futures P / E means nothing. And with such a strong long-term outlook, short-term fluctuations shouldn’t be a reason to panic, making this a rare occasion where I won’t even put a stop.

In some ways, ROK reminds me of TSLA about a year ago. They may not be so young and dynamic, but they have established themselves as a clear leader in an area destined to grow and focused on securing their supply chain at the right time. Wall Street doesn’t seem to have caught up with this yet and is still considering some potential issues that Rockwell has shown they can overcome, just as analysts have said Tesla might not make any money or would be crushed by the competition once. that the big boys entered the game. So while the ROK may seem anything but undervalued as it hovers around historic highs and there is a lot of negative feedback, actual performance and results indicate it is cheap, even here.

Want more articles and reviews like this? If you know Martin’s work, you’ll know that he brings a unique perspective to the markets and actionable ideas based on that perspective. In addition to writing here, Martin also writes a free newsletter with in-depth analysis and business ideas focused on a single, long-standing underperforming industry that’s rebounding quickly. To find out more and subscribe to the free newsletter, click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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