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CNBC
20-06-2025
- Business
- CNBC
Best Stocks: An under-the-radar play on the AI buildout that was founded more than 90 years ago
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — During the last earnings season, the hyperscalers all affirmed their guidance for capital expenditures this year. The AI data center and infrastructure buildout is not slowing down. Earnings results and AI-related commentary from Oracle and AMD over the past week make it clear that this theme remains on fire. Lots of the companies on the Best Stocks in the Market list are direct or indirect beneficiaries of all this spend. Today we're going to introduce you to a name you may not have heard much about yet. In 1932, inventor Arthur Schmitt founded a company to produce electrical connector components for radios in Chicago. Before long, military demand for these components and others skyrocketed thanks to the run-up into World War II. Nearly a century later, Schmitt's company, now called Amphenol (APH) , is still supplying these components to customers around the world. If it has cables, printed circuit boards, sensors, antennas or modules, it needs connectors to make all these things work together. Amphenol's products enable secure, high-performance connections, especially in harsh or high-speed environments where durability is not optional and only the top quality components will do. Amphenol is in three businesses: Harsh Environment Solutions sells ruggedized connectors, cable assemblies, and sensors for aerospace, defense, industrial, and automotive applications. Interconnect & Sensor Systems is made up of commercial electronics, automotive sensors, and fiber‑optic/copper connectors. But it's their third and largest business that we're focused on today. Despite the diversified nature of the company, the upside surprises are coming from their involvement in the global data center build-out. This vertical — Communications Solutions — is 45% of Amphenol's business and growing rapidly, fueled by incredibly strong demand coming from broadband, mobile networks and data center interconnects. After the last earnings report, which Sean will detail below, Wall Street woke up to the fact that there's no AI without connections between the chips and the hardware, the servers and the electrical equipment, the architecture and the energy. Amphenol's products are involved at every stage of this. Best Stock Spotlight: Amphenol Corp (APH) On the list since: 12/16/2024 One-year price chart with moving averages, RSI: Sean — Amphenol has as pretty of a chart as you'll find. Below is a total return price chart over the past 5 years using a logarithmic scale (On a log scale, equal vertical distances represent equal percentage changes, so a move from $10 to $20 - a 100% gain - looks the same as a move from $100 to $200, it helps visualize longer term charts): The stock has seen some downtrends over the past 5 years, but its long-term trend is incredibly consistent - up and to the right. Looking at the stock on a weekly basis, buyers have tended to come in around the 50-week moving average. And if you're lucky enough to have a shot at the 200-week, investors are hammering the buy button. Every move toward the 200-week was followed up with heavy buying volume over the past 5 years: There are not many stocks that have shown this type of strength over long stretches of time. Going back to June of 2020 (5 years), this stock has spent 82% of its time above its 200-day moving average. Comparable to Nvidia Nvidia (NVDA), which is possibly the best stock to have ever existed, spent about 80% of its time the past 5 years above its 200-day moving average. Not to proclaim that this is the next NVDA, but this highlights how strong of a stock this is, and more importantly, how difficult it can be to wait for a dip. The stock is just as strong on a fundamental basis. From its Q1 earnings, Amphenol hit a record $4.8B in sales, up 48% year-over-year. EPS came in at $0.63, up 58% year-over-year. The company achieved record adjusted operating margin of 23.5% in Q1 2025, representing a 250 basis point improvement from 21.0% in Q1 2024 (1 basis point equals 0.01%0. Earnings growth and margin expansion were primarily driven by strong operating leverage on stronger sales volumes. The most significant growth driver was the IT datacom market, which represented 33% of sales and grew 134% organically year-over-year, with particular strength in artificial intelligence-related applications. (Earnings data via Quartr) AI is a massive driver for this company. The CEO had this to say on what's going on with AI: "It is a revolution that creates for our industry a disproportionate opportunity because of the unique nature of the architecture and the intensity of the interconnect solutions that are associated with that architecture. And so when you stack that all together, it's a great revolution. It's a more interconnected intensive revolution, and we've taken more than our fair share of that. The result has been that our IT datacom business has grown very robustly." This stock has a great story, strong technicals, and exciting fundamentals. What more could you ask for? Risk Management: Josh — It's tempting to look at the chart of Amphenol and say "Well, I guess I missed it." And, of course, you're certainly not looking at a ground floor buy-in here. But it's been my experience that more stock market opportunities have been lost by people thinking they already missed their chance than for any other reason. If you've been investing for a while, it's likely you already have some of your own war stories of this variety — Tesla, Bitcoin, Netflix, Nvidia, Broadcom, Palantir, etc. It's really hard to buy a stock that's just doubled. It's even harder to imagine a doubling happening again. Having a solid risk management plan in place prior to entry can help investors over this mental hurdle. APH is currently in the process of consolidating its huge post-earnings rally. RSI has cooled off to just below 70 and that's a good first step. I'd be watching for a price dip into the high $80s, which would be a retest of the most recent breakout area before entering the position. The risk of waiting for that lower entry is you may not get the chance. It happens. Traders will want to keep an eye on the rising 50-day, currently $81.50, as a place to lighten up or exit. Investors will want to give this situation the benefit of the doubt and a little bit of a longer leash. There's a gap below $71, I like that level as a stop as it would tell me the sellers have taken control and something may have changed with the story. 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.
CNBC
19-05-2025
- Business
- CNBC
Best stocks: 2 stocks from the aerospace defense industry on the verge of breaking out
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh here — In today's report we're going to talk about where the strength is in this market and, just as importantly, where it isn't. Industrials are on the leaderboard in a major way this week, thanks to aerospace and defense stocks breaking out to all-time highs. Some of the names in this group are already extended technically, but we'll show you two set-ups that aren't. Utilities are another story. Earlier this year the utility trade was working beautifully thanks to a combination of its defensive characteristics, as well as continued enthusiasm for the AI trend. But the market has changed character since the April low and these stocks have now fallen out of favor. Sean is going to show you what's happening broadly and dig into the rotation a bit. Then I'll chime in with a pair of defense companies worth keeping on your radar, pun intended. Sector Leaderboard As of 5/19/2025 morning, there are 102 names on The Best Stocks in the Market list Top Sector Ranking: Top Industries: Utilities falling off The Best Stocks List Removed: Duke Energy Corp (DUK), American Water Works Co Inc (AWK), Southern Co (SO), American Electric Power Co Inc (AEP), Consolidated Edison Inc (ED) Sean: Southern Co. (SO) and four other utility firms fell off our list last week — this is why we keep a dynamic list of stocks. The market is constantly rotating, and we just saw the early innings of a shift under the surface. During the first few iterations of the Best Stocks in the Market, the utilities sector was the most populous sector on our list. On May 5th and May 12th, there were 14 utility firms on the list, making them the first and second strongest sector for those weeks, respectively. Utilities are considered a defensive sector within portfolios because they provide essential services that customers would not (or cannot) turn off. Electricity, water, gas — consumers will continue to use regardless of economic conditions. You will be ditching Netflix, your car, McDonalds, and any other discretionary items before you cut off power or water. This consistent demand results in stable revenues and predictable cash flows, which often support reliable dividend payments, and as a result, utility stocks tend to exhibit lower volatility and higher yields. During periods of market stress or economic downturns, investors will often hide out in these names while chaos occurs in the more exciting, growth-oriented sectors of the market. That's what happened earlier this year, and that's what is currently happening on our list. From the first trading day of the year through April 3rd (Liberation Day) investors had been buyers of utilities and sellers of the S & P 500: At the bottom on April 8th, on a total return basis, utilities were down 3% for 2025 while the S & P 500 was down 15%. Being defensive paid off. However, from the bottom, we have seen a lightning fast V-shaped recovery, and momentum is swinging back to the higher growth categories. Tech is up an extraordinary 30% from April 8, while consumer discretionary stocks and industrials are up 22% from that date, rounding out the top 3 best performing sectors from the bottom. Digging into tech a bit further - from the market bottom, the VanEck Semiconductor ETF (SMH) was up 36.7%, marking the best 28-day return for the SMH since inception in 2011. This is a great example of momentum and an interesting use case for keeping a list of momentum-oriented names. This list gives us a market barometer, measuring what's going on under the surface. And right now, the market is rotating out of its defensive posture. On May 13 last week, five utility sector stocks fell below their 200 day moving average, removing them from our list: AEP, AWK, DUK, ED, SO. As it stands, industrials, tech, and financials are all flashing signs of momentum, while utilities have fallen to fourth on our sector dashboard. We aren't making predictions as to where the market will go next, but we are taking note as to what's working well and what isn't, and utilities are lagging while growth-oriented areas of the market are taking their leadership back. Best Stocks in the Aerospace & Defense industry: Josh: Now let's take a look at where the strength is. As Ed Yardeni wrote this week, President Trump has gone from "Tariff Man" to "Sales Man" during his whirlwind trip through the Middle East and a major airplane order was one of the highlights. UAE's Etihad Airlines committed to buying 28 wide-body Boeing aircraft with GE engines for $14.5 billion. In the table below, a list of the Aerospace & Defense names on the Best Stocks list at the moment. GE Aerospace, Boeing and Howmet Aerospace have been on a monster run but they look overdone in the short-term, with screaming-hot RSI readings approaching 80 (most technicians consider 70 or above to be overbought). But there are two names on our list that are just now breaking out and haven't gotten as far as the others yet: Axon Enterprise (AXON) Josh: First up, a company whose products you've heard of even if you don't know the name. Axon Enterprise (AXON) is a public safety technology company headquartered in Scottsdale, Arizona, best known for its TASER conducted energy weapons, body-worn cameras, in-car video systems, and cloud-based digital evidence management platform, Axon Evidence. Their products and services are primarily sold to law enforcement agencies, federal and military organizations, corrections departments, and increasingly to private sector clients in industries like retail and logistics. During its last earnings report, Axon raised revenue guidance for the full year to between $2.6 billion and $2.7 billion thanks to strong demand for both hardware and software from its customers. Risk Management: Josh: As you can see below, this is a breakout in progress. Short-term traders would use $700 as a pivot point. Investors may want to set a stop at the top of that gap around the $600 level. A pullback on light volume could help the stock work off its slightly overbought momentum and may provide a good entry. RTX Corp (RTX) Josh: I also want to show you RTX, which is the merged company formed when Raytheon acquired United Technologies back in 2023. RTX has three core businesses — Pratt & Whitney, Collins Aerospace, and Raytheon. They sell aircraft engines, avionics, missile defense systems, satellites as well as cybersecurity solutions. RTX's customers include government defense agencies, commercial airlines and space programs. This year they're projecting 2025 revenues of up to $84.0 billion and earnings per share between $6.00 to $6.15. RTX is on the verge of breaking out. As you can see below, the $135 level had been resistance this spring but the stock is back at that high and challenging. Momentum is solid on this retest and not yet overbought. Risk Management: Josh: I like the rising 200-day at $122 as a trailing stop. I would revisit it every Friday at the close. So long as the stock stays in that uptrend on a weekly closing basis, I think you can be 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.
