AMETEK

From telegraphs to calibration instruments

What are actually the Germans' favorite stocks? According to a survey, these are the top 5: Deutsche Telekom, Daimler, BASF, Deutsche Bank, Allianz; mind you, the survey is from February of this year. Apart from the fact that a survey like this is never representative, it still doesn't cast a good light on German stock culture. I'd put BASF and Allianz in my portfolio too, but I would definitely keep my hands off the rest. Honestly, I was surprised not to find Wirecard on this list as well ...

Why is that? I think many people don't look into the subject enough, and then they simply buy what they know. Yet there are so many great companies that hardly anyone has on their radar but that deliver remarkable performance. With my website I want to pick up exactly here and introduce companies like that in more detail. That's why today it's: AMETEK.

The origins and business model of AMETEK Inc.

Our story begins in 1791, when Samuel Morse was born in the US state of Massachusetts. He attended Yale College and was already listening to lectures on electricity there. To earn some money, he drew small pictures that he sold for $5 apiece. Little by little he made a name for himself as a painter - even today, works of his can still be found in the most renowned museums in the world. Once, Morse was on a sea voyage and listened in on a conversation between two passengers who were talking about electromagnetism. Morse had the idea that if you could make electricity visible in a circuit, you should also be able to transmit messages that way. Hooked on the idea, he tinkered until he presented his first Morse apparatus in 1837. Over the years his telegraph was continually developed and improved. Among others by the Manhattan Electric Supply Company from New York. Business was going great until the speculative bubble on Wall Street burst in October 1929, ushering in the Great Depression.

The company managed to stay afloat for almost half a year, but then the Manhattan Electric Supply Company went bankrupt too. A few shareholders, who had also lost a lot of money, still believed in the company and promptly founded American Machine and Metals Inc., into which they now integrated the Manhattan Electric Company. From the very beginning they looked for suitable takeover candidates that fit the existing business portfolio. So in the very first year they bought the Troy Laundry Machinery Division, Haliwell Electric and the Trout Mining Company. Philipp Mumford, the company's president, realized relatively quickly that Manhattan Electric Co. didn't fit the company's goals after all and sold it again in 1931. Even though 1932 was the worst year of the Depression, AME, as it called itself for short, managed to turn a small profit. In the following years, a lot of money flowed into the economy through various government contracts, and AME's business improved significantly. At the close of fiscal year 1935, AME was able to pay its shareholders their first dividend.

Even the outbreak of war in Europe in 1939 meant significant growth for AME. It produced various washing machines for the Navy, and the company's fans were installed in tanks. With the money it earned, it was able to buy the company United States Gauge in 1944, which manufactured various precision components. 11 years later came the takeover of Lamb Electric, a manufacturer of electric motors for small appliances. Since the focus was increasingly on technology, the company finally changed its name to AMETEK Inc. in 1960. It stuck with its expansion course and its many acquisitions in the following years as well, and yet it never shied away from giving up and spinning off weak business segments. For that reason, AMETEK today is one of the world's leading suppliers of electronic instruments (calibration, testing and monitoring instruments) and electromechanical devices (motors, interconnects and engineered systems). In total, it employs more than 18,200 people at around 150 manufacturing sites in the US and 30 other countries.

What does the future hold for AMETEK?

In general, I'm quite optimistic here. The company has long been present in so many different industries and is firmly anchored in the various work processes, so it will be extremely difficult for competitors to hold a candle to AMETEK. It maintains long-standing business relationships with its customers, so here too it has a certain moat. It's also undisputed that AMETEK will keep looking for suitable companies over the next few years that can be integrated into its own business without any problems. But it doesn't just want to grow externally, but internally too - that's why it always puts a lot of money into research and the further development of existing products.

In the introduction I mentioned investors who buy what they know. I'm convinced that it pays to look beyond your own backyard every now and then and to deal with unfamiliar things. However, I also have to admit that especially with lesser-known companies like AMETEK, it's not always easy to find out something new and interesting ...

And how has the dividend developed?

AMETEK has been paying its shareholders a regular quarterly dividend since 1935. However, the industrial group doesn't raise its dividend every year. For example, in 2015, 2016, 2017 and also in 2018 and 2019 it paid an unchanged dividend each year. Nevertheless, over the past 10 years AMETEK managed to raise its dividend by an average of 19.8 percent per year. Currently, as a shareholder you get a dividend yield of 0.7 percent. That isn't much, but if you consider the equally low payout ratio of 15.7 percent, it quickly puts things back into perspective.

Conclusion:
AMETEK has positioned itself broadly diversified across many different sectors and thus has a pretty strong moat. Business should continue to run solidly here in the future too. If you find the industry interesting in general, I can also recommend taking a look at Parker Hannifin and Illinois Tool Works.