Time will tell how the US economy is evolving in the midst of this seemingly endless automation march. But one thing is certain: investors in the robot revolution’s ground floor will be well served regardless of the fate of the Rust Belt manufacturing jobs.
If you want to take advantage of the ongoing growth in global automation, here are five potential investments to consider:
Rockwell Corp Automation. ROK, + 0.93 percent is a $20 billion company specializing in smart production systems spanning a range of goods including automobiles, textiles and packaged foods. Shares have risen by about 25 percent since Election Day, but this stock is not just lifted by politics; Rockwell posted five consecutive earnings beats, including a strong showing in January when the company raised its 2017 guidance for the full year. Despite recent market turmoil, the stock continues to touch new 52-week highs on a regular basis, and both its direct focus on automation technologies and its significant scale will serve it well as companies increasingly look to robots as a way to contain costs in the coming years.
Cognex Corporation. CGNX, + 1.42 percent is a lesser-known mid-cap specializing in technologies for “machine vision.” This is a fancy way of saying that Cognex helps businesses do things like scanning barcodes to automatically sort goods or inspect goods for faults or reduce waste. Cognex has a string of earnings beats that is even more impressive than Rockwell, meeting or exceeding expectations for at least the past 16 quarters. Moreover, revenue is expected to grow 19 percent this year and 13 percent next year in addition to 12 percent and earnings growth of 18 percent, respectively. It’s a smaller play than Rockwell, so it comes with a bit more volatility, but when you consider shares in the past 12 months to have soared 115 percent, it looks more and more like the big moves in Cognex are going to be upside down.
Lots of people imagine a robot arm welding a car door or zapping a chipset into a smartphone when thinking about automation. But don’t ignore the growing role automation plays in both processed and prepared foods. That’s where Middleby Corp., the midcap industrial stock. MIDD, that’s+ 1.62 percent. Over the last five quarters, earnings have surpassed expectations driven by success in its commercial food service operations, which currently account for about half of sales. However, the food processing business of Middleby grew at a nice 15 percent clip last year and at about 15 percent of total sales is becoming increasingly important to investors. The 2015 acquisition of Marel’s automated “high-speed slicing” company to support this group is proof that Middleby also expects it to continue to grow. If you don’t want a pure play on industrial automation, this company is an interesting alternative to offer diversification and stability as it has a strong and growing division of commercial food service equipment.
Another diversified play on the robot revolution is the German conglomerate Siemens AG SIEGY, +0.69% SIE, +1.16% SIE, +0.99% Siemens has its fingers in many pies, ranging from energy and power transmission to healthcare, but is also a leader in automation solutions. Although there are many different elements that power this stock, it is important to note that in the latest Siemens annual report, the Digital Factory division is the most profitable with a margin range of 14% to 20%. With a market capitalization of $120 billion, a dividend of 2.8 percent and a truly global customer base, Siemens offers a nice low-risk alternative for those seeking automation dabbling.
With its Robotics & Automation ETF (ROBO), ROBO Global has created the first benchmark index to track the global robotics and automation industry. William Studebaker, President and CIO, followed with a keen eye the progress of agricultural robots. He says farming is a “massive robotics market” with a lot of horizon disruption. With some $420 million in assets as of this writing, the ROBO Global Robotics & Automation Index ETF ROBO, + 0.73 percent is a modest fund. And while the expense ratio is a bit steep at 0.95 percent, or $95 on $10,000 invested annually, it’s hard to argue that this fund doesn’t fit the bill for those who want to play trends in automation without picking up individual stocks. Best of all, unlike many top-heavy kinky ETFs out there in just a handful of names, the ROBO fund is truly diversified and places no more than 2 percent of its holdings in any single stock. With shares rising around 30% in the past 12 months and 12% year-to-date in 2017, this automation-focused ETF has a history of outperformance and will enjoy a bright future if current trends continue.
“It’s all about trying to cut costs and save time,” Studebaker said. “It’s going to be a long-term growth industry.” “The pace of change is only accelerating, and it’s very dramatically accelerating right now. Either you’re innovating or you’re going to be out of business. Innovation wins, and that’s what’s going on.” He believes that we can barely see the tip of the iceberg when it comes to the future impact of automation on farming. “If you look at the innings we’re in with robotics and AI, we’re not even in the first inning yet,” he said. “The players are still in the locker room getting their clothes on.”