The U.S. Federal Reserve has made it very clear that interest rates are still heading higher, which could very well push the economy into a recession. In fact, there have already been two consecutive quarters of negative gross domestic product, which is often taken as a shorthand indication of a recession. So it shouldn't be too surprising that stocks have fallen sharply. But that could be an opportunity for long-term investors to add Rockwell Automation (ROK 0.50%) to their portfolios.
Life is variable
There's a saying on Wall Street that trees don't grow to the sky. The market is more like a sine curve with a gentle upward slope over time. Right now, well, things aren't looking too good, with the Dow 30 and the S&P 500 Index both in bear market territory. Investors have a habit of throwing the baby out with the bathwater when they are scared, so a lot of stocks, even ones backed by great companies, are falling sharply.
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In this environment, long-term investors should be stepping back and trying to control their emotions so they don't make rash decisions. But this is also a good time to go shopping, so long as you stick to strong companies. Industrial Rockwell Automation is just such a company, with the over-35% stock price decline so far in 2022 potentially offering a solid entry point despite the broader economic worries.
To be fair, there's some reason to worry here. Specifically, Rockwell Automation has had supply chain problems that have stopped it from fulfilling orders. It's also, like so many companies, dealing with elevated inflation. So sales haven't been as great as hoped, and margins are under pressure. In fact, the company reduced guidance when it reported fiscal third-quarter earnings not too long ago.
Think long-term
That said, investors should take the negatives here with a grain of salt. For starters, history suggests that inflation will eventually pull back and, in the meantime, Rockwell is pushing through price hikes. So this is a problem, but perhaps not as material as some fear. Second, even though the company reduced guidance, it is still expecting sales to grow by double digits. Rockwell is hardly struggling.
That brings up what is perhaps the most important factor to consider about Rockwell Automation. As the industrial's name implies, it sells automation technology and services to its business customers. The whole point of automation is to help reduce costs and improve business performance. These are things that become more important during an economic downturn, not less. There might be a period of adjustment in the business world, but it is highly likely that demand for Rockwell Automation's products and services heads higher over time. And a recession could actually speed up the pace.
That's backed up by the record backlog management reported during the fiscal third quarter. The company even noted that demand remains strong, despite the economic headwinds. Put simply, Rockwell Automation's business appears to be holding up very well even though investors have become increasingly pessimistic about the shares. It requires a bit of contrarian thinking to jump into this stock right now, but if you understand the business that shouldn't be too hard.
A decent stock at a decent price
Rockwell Automation isn't exactly cheap today -- its roughly-2% dividend yield is about middle-of-the-road historically speaking. However, with over 10 years of annual dividend increases under its belt, this Dividend Achiever's business looks more likely to benefit from economic troubles than to succumb to them. And that risk/reward balance makes it a solid option for investors that can think long-term when everyone else is thinking short-term.
