I sometimes wonder how much of a stock’s valuation can be explained by “behind the scenes” factors like convenience. Take Rockwell Automation (ROK) – these shares often look quite pricey, even relative to above-average growth, but they’ve continued to perform, and I wonder if that’s because it’s an easy call for institutional portfolio managers. Need exposure to automation? Buy Rockwell and call it a day.
I don’t mean that to sound as glib as it might – Rockwell is a legitimately strong player in automation, and management has taken serious steps to improve its positioning in attractive growth markets like logistics, semiconductors, and life sciences, as well as embrace industrial software. I just find the valuation a tougher sell given that the growth outlook isn’t as differentiated as the valuation might lead an investor to think.
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