Josh Brown says the market is telling you this stock is special
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Here’s a quick, informal test I use when I’m talking to a professional asset manager about their investing philosophy. I ask them why does a stock go up a lot? They joke back “more buyers than sellers” and we both giggle. Then I say no, seriously, is the stock market mostly right or mostly wrong? Most professionals will agree, at least privately, that rallying stocks attract their attention (and their interest and their research) because there is a wisdom in the uncoordinated actions of the masses. Most professionals are reasonable and open-minded in the presence of a bull market, even when they themselves have missed the early stages of it. They may not always agree with the crowd, but they know better than to summarily dismiss it. When millions of people decide to buy a stock or a sector or an asset class all at once without having a group conversation amongst each other, it’s notable. First the story — the Why — becomes widespread and then price action does the rest. And sometimes, the price action is the story. Nothing attracts a crowd like a crowd. This is not the same as saying the market is always right or that every stock that goes higher deserves to. The market is right, until it isn’t, and then perhaps the crowd learns a new story. But if I’m talking to someone who wakes up looking for things to be contrarian about, I probably wouldn’t invest with that person. If I’m talking to someone whose overarching investing philosophy is that everyone else is dumb and he or she (let’s be honest, this is always a he) is going to outsmart the entire world on a daily basis, I know I’m talking to a serial underperformer. You can log onto your favorite social media app and find these people. They’re posting all day. They’re not busy — they have mostly been drummed out of the hedge fund business over the years and are now selling their own brand of sophisticated skepticism via Substack. Every post is something sarcastic about what other investors are doing and saying. The smugness is thicker than split pea. The crowd is always wrong and they are always right. If only everyone else would come to their senses, these guys would be managing billions of dollars and all would be right with the world. But alas… As a professional investor, I believe the crowd often knows things early, before they can be put into words in the media. And then once the media learns the story well enough to repeat it in articles and TV segments, it’s gotten late. I don’t believe that everyone is dumb and that my job is to wake up and outsmart a hundred million other investors. I believe in identifying trends — higher and lower — and then using those trends to better understand the world. If that makes sense to you, then you’re one of us. Today we’re going to introduce you to a new company you’ve probably never heard of before. It’s been on our Best Stocks in the Market list for awhile but we haven’t gotten around to writing it up until now. When we wrote up Amphenol (APH) this summer, we talked about it as a stealth beneficiary of the AI data center capex explosion, although that was only part of the story. The stock turned out to have been a home run. It’s got a competitor called AMETEK (AME) which has been in business since its founding 95 years ago in 1930 when it was known as American Machine and Metals, Inc. AME came public in 1984 and has quietly become one of the most important players in some of today’s fastest growing industries, from aerospace and defense to electrical power generation. The crowd has recognized AME’s potential which has led to a modest rally toward record highs and a valuation re-rating higher. Is the crowd stupid? I don’t think so. Sean’s going to share some insight into the company’s recent fundamental strength and then I will talk about the technical setup… Best Stock Spotlight: AMETEK, Inc. (AME) On the list since: 10/30/2025. Sean — Before diving into the fundamentals of AME, Amphenol, which has been one of our best picks this year, is up 48% since we mentioned it. Oftentimes, investors are looking for value. That’s what everyone learned in college. Buffett has rightly been preaching it for 50 years. It’s easy to conceptualize, too. Pay $2 for a pen worth $3, simple enough. Momentum is less intuitive. Buying the stocks that already look amazing flies in the face of the value investor. However, following that strategy would have allowed you to outperform the mighty Nasdaq 100 by 34% the past 5 years: This Amphenol price chart starts at the beginning of 2022 and goes through 6/20/2025, the day we wrote up APH: 99% of people’s first reaction is that they missed it. Well, we saw the price add about 45 points to what was a $90 stock. Here it is YTD: We happened to get this call right, though not every stock we write about will work. Still, prices usually trend higher for a reason, and we are believers in the wisdom of crowds as long as the fundamentals support it. The same idea can apply to AME. This company reported incredible earnings on 10/30. They reported record numbers in sales, orders, operating profit, and EPS. Sales were up 11%, net income was up 9.2%, and full year EPS targets were raised to $7.32-$7.37, up 7-8% year-over-year. AME operates in a few key markets, similar to APH. Within all 4 markets (aerospace and defense, automation and engineered solutions, power and industrial, and medical) the firm delivered top line growth in every one. Excluding acquisitions, AME saw 90bps in margin expansion this prior quarter. YTD, the company has expanded operating margins by 70bps, hitting 27.5% through the third quarter. AME expects about 8% EPS growth to finish this year and about 8.5% next year. AME’s valuation has been consistent historically. Its 10yr median valuation is 27x vs 31x today, albeit with lower margins in previous years relative to the current business. The chart above shows AME’s EBIT margin since inception, along with its trailing P/E ratio. Both have stair-stepped higher along with its price. The technicals are solid, and the fundamentals are proving why. Risk management Josh — AMETEK doesn’t have any earnings report coming til early February and no major investor events on the calendar before then. So in the absence of any major news that we’re aware of, all we have in front of us is the trend itself. The trend is higher. AME broke above $200 for a brief moment on Halloween and it’s been in a shallow consolidation ever since. In the chart below, you can see the buyers popping up at the 50-day: With the stock just 5% above that moving average, this level is too close to set a stop. I’d be using $182, which is both the bottom of the last gap higher as well as the 200-day moving average. AME has held its 200-day since July. A convincing rip below and it’s time to move to the sideline to reassess. Above that level I think you can stay long. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC” TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
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