Ametek, Inc. (AME)

The earnings season has brought us many winners and also shown me some of the companies that are not household names. Ametek is one of those companies. They have been on a tear over the past three and a half months and now they have broken out and could see another 30% upward. They have been on a major buying spree and were rewarded with record earnings this quarter.





This stock is well positioned as they sell and manufacture electronic equipment and motors in over 30 countries. Their products are in many industries including aerospace and power generation. This past quarter they set records with respect to sales, operating income, net income, and diluted earnings per share. Sales were up 21%. Total orders were up 24%. Operating income was up 29%. Margins improved by 130 basis points. Net income was up 30%, and diluted EPS was up 29%. Year over year cash flow increased 39%.





With respect to electronic instruments sales were up 20%. Operating income was up 27%. Margins were up 130 basis points. The electromechanical group also did well. Revenues were up 22%, and operating income rose 24%, while margins improved 30 basis points.





AME currently has four goals. The first is what they call operational excellence and this has increased margins this quarter. They realized $4.5 million in savings last year on moving manufacturing to lower cost centers; they should see a decrease in costs by $16 million over the full year. These centers also were 14% more productive helping to realize growth. Their second goal is global expansion. This saw a 24% increase in sales overseas. This was 51% of all sales for the company. China revenue increased 22% and Russian revenue was up 33%. Their third is product development where they have spent an increase of 12% last year. Revenue from new products in the last three years was 16% of revenue this quarter. Their fourth is acquisitions. They have purchased four companies this year. These acquisitions went right to the bottom line and are much of the reason for a record quarter.





This company will protect your investment with respect to the slowdown of the US economy. Overseas sales are increasing and have invested in long cycle businesses such as aerospace, which I agree to be a key to their growth for the next five years. The company estimates a quarter of their sales come from the US market that is affected by the slow down. The company expects they will grow by 19% this year. They will continue to add businesses going forward concentrating on aerospace and power generation as their long term look quite good.





Even at the current valuation the company is still cheap at a forward PE of 17. Analysts have current revenue increasing by 12.5% this year and it looks like that will be closer to 19%. They have revenue the following year at 4%. They have beat on earnings for the last four quarters. If they continue the growth they have had for the last five years then their PEG ratio is only at .75, and I believe this company could easily average that with demand in their key areas. The stock is a buy on a pullback.