Robotics stocks offer an attractive source of opportunities for growth investors. The long-term potential of the industry is obvious. And adoption should only accelerate amid the response to the novel coronavirus.
Meanwhile, for over a decade, investors have been rewarded for focusing on growth over valuation. As long as that trend holds, robotics stocks should be winners. Whether it’s healthcare, defense or heavy industry, automation and robotics literally are going to change the world. Savvy investors will look for exposure to that transformation.
That said, there are two current issues with investing in the trend. First, valuation is a potential catch for investors looking for robotics stocks to invest in. The broader opportunity for the group is known to at least some extent. Markets have adjusted accordingly.
Second, some of the industry’s growth is going to come from companies for which robotics is still a small part of the overall business. For instance, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) unit Google X is developing robots through its Everyday Robot Project. Yet it will be years before robotics materially impact Alphabet stock, even in a best-case scenario.
Still, there are enough robotics stocks out there for investors to choose from. Here are 10 of the most intriguing:
- ABB Ltd. (NYSE:ABB)
- iRobot (NASDAQ:IRBT)
- Stereotaxis (NYSEAMERICAN:STXS)
- FLIR Systems (NASDAQ:FLIR)
- AeroVironmnent (NASDAQ:AVAV)
- Trimble (NASDAQ:TRMB)
- Intuitive Surgical (NASDAQ:ISRG)
- Globus Medical (NYSE:GMED)
- Daifuku (OTCMKTS:DFKCY)
- Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
Let’s take a deeper look into what makes each of these hold significant long-term promise.
Robotics Stocks to Buy: iRobot (IRBT)
Perhaps its surprising, but iRobot is the most divisive stock in the group. The case for IRBT stock seems solid. The company’s Roomba is the clear leader in home robotics, generating over $1 billion in annual sales. The Braava mopping robot grew sales 30% year-over-year in 2019, if off a small base.
Its valuation is a bit high, but iRobot has a fortress balance sheet, with almost $10 per share in cash. In the context of the growth potential and the balance sheet, a 36x forward price-to-earnings multiple doesn’t seem prohibitive. And a business update on Monday dispelled fears about demand pressure from the coronavirus pandemic, while sending IRBT stock to a 10-month high.
Yet skepticism persists. Short sellers continue to target the name: over 30% of shares outstanding are sold short. Trade war concerns led the stock to plunge last year. Tariffs were a key reason why adjusted earnings per share declined 15% year-over-year in 2019. And bears see competition from privately held Shark as another negative catalyst.
Long-term, the case for IRBT stock still seems attractive. There will be new products on the way, and a growth runway that’s potentially decades long. But given the intense debate over IRBT at the moment, and a newly volatile broad market, investors interested in the stock don’t necessarily need to rush in at the highs.
On paper, ABB is one of the better robotics stocks out there. The problem is that, in practice, the company hasn’t yet been able to capitalize.
After all, ABB stock has traded sideways for years now. The 20-year return, even including dividends, is only barely positive. The industrial giant has outperformed General Electric (NYSE:GE), but Honeywell (NYSE:HON) has been the clear winner among diversified industrial names.
That broader sense of disappointment applies to ABB’s robotics business as well. ABB is the world’s second-largest robot manufacturer. But revenue in the category declined last year, and weakness in the automotive industry suggests further pressure in the medium term.
So ABB stock is a turnaround play, and given large businesses elsewhere not a pure play on the robotics business. That said, the stock still offers an intriguing bet. A dividend yield just shy of 4% presents a “get paid to wait” bull case. Valuation is reasonable. And ABB plans to expand its robotics business into new end markets like healthcare, while aiming for margin improvement at the same time.
For investors looking for an aggressive play on robotics, there are better choices than ABB stock. But for those intrigued by the trend, but still looking for value, this diversified giant is an attractive play.
Stereotaxis has the potential to be one of the best-performing robotics stocks over the coming years. But the company has to deliver.
Stereotaxis manufactures robotic systems and instruments used in cardiovascular procedures, most notably for treatment of irregular heart rhythms. Its platforms actually use magnetism to move catheters, an intriguing approach that the company says is safer and more effective.
Meanwhile, we’ve seen small-caps (Stereotaxis has a market value just under $400 million at the moment) in the space provide big returns as they are acquired. Just last year, Siemens Healthineers (OTCMKTS:SMMNY) picked up Corindus Vascular Robotics last year for just over $1 billion. That followed the entry of Johnson & Johnson (NYSE:JNJ) into the space, via its purchase of Auris Health in February 2019.
The concern, however, is whether Stereotaxis actually can deliver. The company went public in 2004 at $8 per share; thanks to a reverse split, shareholders since the IPO are down over 92%. Profitability remains elusive.
The second-generation Genesis system is supposed to change that. If it does, the rewards are obvious. A purchase price in line with that of Corindus would suggest that STXS stock can triple.
But from a simple look at the company’s history, the risks, too, are obvious. Stereotaxis simply hasn’t gotten it done yet. That will have to change for returns to improve.
AeroVironment is more of a unmanned aerial systems (UAS) pure play than FLIR. The company long has done big business with the U.S. military. But as the American presence in the Middle East shrank, so did AeroVironment’s revenues.
The company has thus pivoted toward contracts with American allies. Just over half of fiscal 2019 (ending April) revenue came from overseas. And there should be more opportunities to get larger contracts with more allied nations.
That said, valuation is a bit of a concern, particularly with an 11%-plus gain so far this year. And AeroVironment has struggled in driving commercial revenue after talking up that opportunity in past years.
Execution on that front would help. So would margin expansion. And the company remains a potential takeover target for the likes of Lockheed Martin (NYSE:LMT). Back near $70, AVAV is a bit of a “show me” story, but it’s an attractive story nonetheless.
FLIR Systems (FLIR)
FLIR Systems isn’t a robotics pure-play. The company’s core business is manufacturing thermal imaging systems used by customers ranging from the U.S. military to law enforcement to construction.
But that core business looks attractive, particularly with FLIR stock down 20% year-to-date. Taking the long view, growth and margins both should be positive. FLIR’s manufacturing costs are declining, while the potential applications for its products are expanding.
Meanwhile, there’s enough here to put FLIR on the list of robotics stocks. The 2019 acquisition of Endeavor Robotics added unmanned ground vehicles to the company’s portfolio. UGVs are used for ordnance disposal and reconnaissance in situations too dangerous for humans to be involved.
FLIR’s robotics expertise extends to the air as well, through its manufacture of UAS — more commonly referred to as drones. And the company manufactures sensors used by other robot manufacturers, giving it exposure to secondary markets.
On its own, FLIR stock looks attractive here. For robotics bulls, it looks like a solid buy.
Trimble, too, is not a pure-play on the robotics trend. The diversified industrial supplier offers everything from construction software to agricultural systems to telematics solutions used by transportation organizations.
But Trimble has a growing foothold in the robotics market. A partnership with two other companies is developing a “robotic dog” to be used for dangerous jobs on construction sites. Trimble’s Robotic Total Stations are used by surveyors. And there are other second-order benefits to the company from growing robotics use cases.
At 20x forward earnings, Trimble isn’t necessarily cheap, and the stock has struggled to break through resistance modestly above the current price. This might be a bit of a “buy the dip” play, particularly given near-term pressure on certain end markets. But strong performance on the robotics side of the business could be enough to drive solid long-term returns for patient investors.
Intuitive Surgical (ISRG)
Intuitive Surgical is the largest of the pure-play robotics stocks. And investors who got in early have done very well. ISRG stock has gained some 9,400% in the 20 years since its initial public offering. The company’s Da Vinci platform is unquestionably the leader in the space, and has helped to create the robotic surgery market itself.
What’s interesting about ISRG, however, is that the gains have come to an end. The stock has traded sideways for the last 21 months. A steep valuation and modestly decelerated top- and bottom-line growth have created concern among investors and analysts. Intuitive Surgical stock in fact now trades modestly above the average Wall Street price target.
Still, as far as robotics stocks go, ISRG remains the gold standard. And while the stock has been stuck for almost two years, there’s a path to a rally, particularly if Intuitive Surgical can find another growth driver.
Globus Medical (GMED)
Right now, Globus Medical is not much of a robotics play. Most of the company’s revenue comes from its musculoskeletal business, which includes implantable devices and surgical instruments used in spinal and orthopedic procedures.
That has been a good business, as sales and earnings have grown steadily over the years. GMED stock has gained 256% since its 2012 IPO. And at 27x earnings, there’s a case that the stock is priced reasonably for the growth in that side of the business.
Meanwhile, Globus has developed its own robotic platform, the ExcelsiusGPS. That platform is used now to improve surgical precision and outcomes, but Globus expects that over the long term, ExcelsiusGPS can support artificial intelligence and augmented reality as well.
The near-term catch is that robotics still are a small part of the business, generating just 6% of 2019 sales. And last year’s performance was soft: revenue in the category was flat for the year. Unsurprisingly, GMED stock has followed the same trajectory.
Still, the long-term opportunity is intriguing. And there’s a case that GMED stock is an attractive “heads I win, tails I don’t lose much” stock. If the robotics platform stumbles, the larger medical device business supports the valuation, and could make the company an acquisition target. And if ExcelsiusGPS succeeds, the long-term performance of Intuitive Surgical stock shows how meaningful that success can be.
Japanese giant Daifuku is an intriguing robotics play. The company long has been a leader in materials handling, and is leveraging its expertise into developing automation solutions, with a core focus on retailers.
Obviously, with the rise of Amazon (NASDAQ:AMZN), there is no shortage of companies looking to improve their warehouse and logistics solutions to keep up. That opens an enormous opportunity for Daifuku.
Competition is stiff, and valuation is a worry. Some U.S. investors may have trouble accessing the shares as well: liquidity in the over-the-counter listing is somewhat thin. Still, Daifuku is an intriguing play on automation and robotics — and there’s another way to get exposure to the stock.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Investors bullish on robotics stocks can go the exchange-traded fund route. And the Global X Robotics & Artificial Intelligence ETF seems like the best play.
The BOTZ ETF does have some exposure to artificial intelligence as well. Nvidia (NASDAQ:NVDA) in fact is the largest holding, at a bit over 13% of assets. But the fund’s top ten holdings include Intuitive Surgical and ABB. Core positions include a number of Japanese robotics leaders, including Daifuku, Mitsubishi Electric (OTCMKTS:MIELY) and Fanuc (OTCMKTS:FANUY).
Like the market as a whole, BOTZ has bounced back sharply from March lows. But the ETF still sits well below early 2018 highs. And a dip in recent sessions might provide a buying opportunity. The broad trend of robotics seems like it can drive strong growth, and if it does BOTZ should have upside from here.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.