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4 Tech Stocks That Will Dominate Robotics

Robots may seem like science fiction, but they are increasingly becoming a key part of the business world

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

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Robots may still seem kind of like a niche industry, but the reality is much different. Over the years, companies — especially manufacturers — have invested substantial sums on robotics. In fact, back in 2012, Amazon.com, Inc. (NASDAQ:AMZN) plunked down $775 million for Kiva Systems, a top robotics manufacturer for warehouses.

4 Tech Stocks That Will Dominate Robotics
Source: Shutterstock

No doubt, the industry represents a nice growth opportunity. Let’s face it, robotics are often cheaper than traditional labor.

But there are also powerful trends that are driving the growth. Just some include high-speed chips, sensor technologies, cloud computing and Artificial Intelligence (AI).

So how big is the opportunity? According to research from IDC, the worldwide spending on robotics is expected to more than double by 2020 to a whopping $188 billion. Indeed, there is quite a bit of room for many players to reap hefty profits.

What are some of the companies to consider now? Let’s take a look at the following tech stocks to buy:

Tech Stocks to Buy: Cognex Corporation (CGNX)

Tech Stocks to Buy: Cognex Corporation (CGNX)

Cognex Corporation (NASDAQ:CGNX) is not a startup. Keep in mind that the company has been around for 36 years.

But CGNX is certainly growing as if it were a much younger company. In the latest quarter, revenues jumped by 40% to $134.9 million and net income came to $45.7 million.

Then again, Cognex is the top player in a critical part of the robotics market: machine vision systems. The technology allows for the automation of the manufacturing and tracking of discrete items like mobile phones, aspirin bottles and automobile tires. Of course, the human eye is no match for robotics, which allow for much more precise measurements for tolerances, orientation, size or speed.

Over the years, CGNX has been aggressive with its R&D, which represents about 15% of revenues. Note that the company holds 943 patents.

As for the market size, Cognex estimates it at about $2.9 billion. A key is that the applications for machine vision are so extensive.

According to the 10-K for CGNX: “Virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision, and therefore, this market includes a broad base of customers across a variety of industries, including consumer electronics, automotive, consumer products, food and beverage, medical devices, and pharmaceuticals. Factory automation customers also purchase Cognex products for use outside of the assembly process, such as using ID products in logistics automation for package sorting and distribution.”

Tech Stocks to Buy: Oceaneering International (OII)

Tech Stocks to Buy: Oceaneering International (OII)Robots have been quite adept for the seas as well. And this is the focus of Oceaneering International (NYSE:OII). The company is a top developer of systems like Remotely Operated Vehicles (ROVs) that help with drill support, hardware installation, surveys, maintenance and construction.

As of the end of last year, OII had 280 ROVs, representing 28% of the market.

But it is important to note that the market has been challenging because of the wrenching volatility of crude prices over the past few years. This has been particularly hard on deepwater projects, which represents the main sweet spot for Oceaneering.

As a result, the company has been aggressive with cost cutting. So while revenues have been far from inspiring, OII has continued to generate strong free cash flows (they came to $41.2 million for the prior quarter). There is even a decent dividend yield of 2.4%.

But with Oceaneering, the play is really for the long-term. After all, deepwater projects will remain a critical part of replenishing oil reserves across the world. And besides, when the markets perk up, OII will be positioned nicely to benefit.

Tech Stocks to Buy: Teradyne, Inc. (TER)

Tech Stocks to Buy: Teradyne, Inc. (TER)Until the summer of 2015, Teradyne, Inc. (NYSE:TER) was mostly a supplier of automation systems for testing semiconductors, wireless devices and storage systems.

But the company made a transformative move into the robotics market with the purchase of Universal Robots (UR). UR had built a leading position in the category for collaborative robots or cobots. These are low-cost robots that are used in conjunction with production workers — helping with packing, assembly, gluing and polishing.

For the most part, the acquisition turned out to be stellar. It certainly helped that there was lots of synergy with the traditional business of TER. But of course, the market for cobots would continue to grow at a torrid pace.

For example, during the latest quarter, the robots segment saw revenues spike by 117.4% to $19.6 million. Keep in mind that Teradyne spent only about $284 million for the acquisition.

On the latest earnings call, TER CEO Mark Jagiela noted: “UR continues to reshape how companies think about industrial automation … The universal nature of our human scale cobots makes the breadth of applications nearly limitless. We are regularly surprised by the new uses customers have for their cobots.”

Tech Stocks to Buy: Intuitive Surgical, Inc. (ISRG)

Tech Stocks to Buy: Intuitive Surgical, Inc. (ISRG)The roots of Intuitive Surgical, Inc. (NASDAQ:ISRG) go back the late 1980s, with the research into robotic surgery from the SRI International Institute.

Then in the mid-1990s, Dr. Frederic Moll understood that the commercial potential was enormous — yet he had trouble getting much buy-in. But like any great entrepreneur, he did not give up. Eventually he was able to raise the necessary capital to buy the technology from SRI.

Of course, he turned out to be spot-on. As of now, ISRG has a market cap of $34 billion.

At the heart of the company is the da Vinci Surgical System, which allows doctors to perform surgeries, such as for prostatectomies and gynecologic procedures, by using a remote console. Essentially, the system mimics hand movements.

A typical device costs about $1.5 million. But there are also recurring fees for maintenance as well as wrists joints and staplers.

Overall, the business model has been quite lucrative. During the latest quarter, revenues rose by 13% to $595 million and earnings came to $180 million, up from $136 million compared to the same period a year ago. This also does not include $23 million from deferred revenues. The company has a total of $3.1 billion in the bank.

Interestingly enough, ISRG has been quite investor friendly as well. During the quarter, the share buybacks came to a hefty $2 billion.

But going forward, the growth rate is likely to perk up. A key reason is that ISRG is planning on introducing lower cost systems, which should help to expand the market opportunity. It’s important to keep in mind that — according to research from RBC Capital Markets —  robots still constitute only about 5% to 10% of the total market.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/4-tech-stocks-that-will-dominate-robotics/.

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