Given the decline in the market in 2022 and the fall in share prices of all three stocks discussed here, it might seem odd to single them out as being "too expensive." Add the fact that Rockwell Automation (ROK 3.21%), multi-industry industrial Illinois Tool Works (ITW 1.16%), and life sciences and diagnostics company Danaher (DHR 0.75%) are high-quality companies, and readers are entitled to be a little puzzled by the headline now.

Still, valuations matter, and so does the patience to wait for a good entry point into what should be a long-term growth story on these three stocks. 

1. Rockwell Automation: A growth stock with a rich valuation

This automation company has a lot going for it. Automation is a long-term growth industry for a host of reasons. It helps companies reduce costs, and it also helps reduce supply chain complexity by allowing manufacturers to shift production away from low-labor-cost countries scattered around the world. 

In addition, advances in digital technology and the increasing use of industrial software make automation even more productive. As a result, everything points to a strong future for the industry, and Rockwell's orders rose a whopping 20% in its fiscal 2022 (ended Sept. 30), encouraging management to forecast organic sales growth of 9%-13% in its financial 2023. 

Still, valuations matter, and it's hard to make the case that Rockwell is a great value right now, particularly when compared with a peer like Emerson Electric that's pivoting its business toward automation. Not only is its current enterprise value (market cap plus net debt) to earnings before interest, taxation, depreciation, and amortization (EBITDA) above historical norms, but the forward valuation is still above pre-pandemic levels. 

ROK EV to EBITDA (Forward) Chart

Data by YCharts

Moreover, data from the industrial sector is pointing toward a slowdown in activity, and orders can quickly turn down if its customers start shelving spending plans. So, it's a great company that has a bright future but not the best entry point into the stock. 

2. Illinois Tool Works: The good news is already in the price

This company and its management don't seem to get the credit they deserve. CEO E. Scott Santi joined the company in 1983, working his way up through the ranks to become CEO in 2012. His experience and in-depth knowledge of the company encouraged him to launch its enterprise strategy in 2013. It's an approach involving pruning less profitable businesses and product lines, focusing on the 20% of customers that deliver 80% of revenue while minimizing costs related to servicing smaller customers.

Unlike its peer 3M, Illinois Tool Works is not a company spending a lot of money on research and development to produce proprietary products with differentiated technology. Instead, management focuses on innovating its products in line with feedback from its key customers. 

The strategy worked, and the company continues its long and profitable march toward its aim of a 28% operating margin.

ITW Chart

Data by YCharts

As with Rockwell Automation, it's not easy to make a value case for the stock. And it's even harder to make the case when you consider that the manufacturing economy is slowing; Illinois Tool Works has some highly cyclical business segments such as welding, polymers and fluids, and construction products. With limited visibility into these businesses in 2023, the rating looks a bit too rich for now. 

ITW Price to Free Cash Flow Chart

Data by YCharts

3. Danaher: Monitor closely for a better entry point   

The life sciences and diagnostics company Danaher (the environmental and applied science segment will be spun off in late 2023) is another company with a bright future. The COVID-19 pandemic boosted sales of its diagnostics platforms, and the company has a long-term opportunity to grow test sales into these newly established customers.

Moreover, the pandemic also boosted an already strong trend toward vaccine and therapy research, notably with monoclonal-antibody-based research. That's excellent news for Danaher's life science segment, where the company is a leader in bioprocessing, having acquired General Electric's biopharma business at a great price and with great timing in 2020. 

Everything points to a bright future. However, Danaher is not a superficially cheap stock. 

DHR Price to Free Cash Flow Chart

Data by YCharts

Moreover, there's a fair amount of uncertainty around what its COVID-19-related revenue will be in the coming years. Testing revenue will decline, and the uncertainty around COVID-19-related vaccines and therapy revenue was highlighted in October when CEO Rainer Blair told investors it would be $800 million in 2022 versus a previous estimate of $1 billion. For reference, the current guidance is for $500 million in 2023. 

All told, the fall-off in COVID-19-related revenue (testing and diagnostics) leads Wall Street to forecast a slight decline in sales for 2023. Any downward revision to that forecast might put the stock under pressure in 2023. It's something to look out for because it could create a better entry point into a very attractive stock.