For decades, the concept of robotics and automation represented the future of manufacturing. But it wasn’t until the advancement of artificial intelligence and other related technologies that automation stocks began to move beyond the low-hanging fruit and toward valuation gains based on substantive economic and processing efficiencies.
Then came the novel coronavirus, which briefly put the sector on hold.
However, as we gradually learn to adapt to the new normal, automation stocks carry tremendous relevance. Primarily, the pivotal benefit is worker safety. This was a contentious political point as many privileged workers were able to enjoy work-from-home protocols, while those on the field had to risk their health, and in some cases, their lives. As Industrial Safety & Hygiene News pointed out:
Employees can benefit from the use of automation where it is possible to employ the technology to perform repetitive, unsafe and potentially hazardous job activities. Workers can be shielded from temperature extremes or radioactive/toxic environments. The use of robotics may also extend factory production beyond the limits of human capability through the handling of heavy loads or manipulation of tiny parts or devices.
Yet, equally important, automation stocks are levered to innovations that lower operating costs, as one manufacturer explains it:
Robots can perform the work of three to five people, depending on the task. In addition to savings on the cost of labor, energy savings can also be significant due to lower heating requirements in automated operations. Robots streamline processes and increase part accuracy, which means minimal material waste for your operation.
Just as importantly, the coronavirus pandemic devastated the global economy. While we’re trudging along on a recovery path, as the December jobs report demonstrated, the trajectory hasn’t been completely linear. Therefore, companies will likely rely more heavily on cost-saving platforms, which bodes well for these automation stocks.
- ABB (NYSE:ABB)
- Rockwell Automation (NYSE:ROK)
- 3M (NYSE:MMM)
- Toyota (NYSE:TM)
- Mitsubishi Heavy Industries (OTCMKTS:MHVYF)
- Intuitive Surgical (NASDAQ:ISRG)
- Kion Group (OTCMKTS:KNNGF)
Finally, we should acknowledge that there’s a “cold war” in the automation arena. Our economic and geopolitical rival China leads in the space with 154,000 industrial robots. The U.S. is in third place at 40,300 robots, behind Japan at 55,000. With competition heating up for reasons other than the capitalist drive, these automation stocks should do very well in 2021 and beyond.
Automation Stocks: ABB (ABB)
A Swedish-Swiss multinational corporation, ABB is highly regarded as one of the main leaders among automation stocks. Primarily operating in robotics, power heavy electrical equipment and automation technologies, the company is at the forefront of next-generation manufacturing processes. As we navigate our way out of the coronavirus pandemic, ABB stock will likely enjoy sustainable upside.
Indeed, shares are already off to an auspicious start to the new year, having gained 8% since the January opener. Over the trailing year, ABB stock is up over 31%, an impressive tally for an international blue chip. This also suggests that investors are starting to see light at the end of the tunnel.
Another factor to consider for ABB is that the underlying company is an ESG (environmental, social, and governance) play. In 2019, the company made news for its satellite-mounted optical equipment used to measure greenhouse gases in the earth’s atmosphere. As well, ABB is a sponsor of Formula E, the electric vehicle racing series.
Thus, for direct relevance to automation stocks and its ESG cred, you can’t go wrong with ABB.
Rockwell Automation (ROK)
Since it’s already in the name, you’d reasonably expect Rockwell Automation to be a relevant player among automation stocks and you’d be right. Specializing in industrial solutions and information technology, Rockwell offers holistic automation services across a wide range of sectors. During bull markets, that was completely fine. However, in the new normal, this broad scope became a liability for ROK stock.
For instance, the company generated revenue from disparate markets, ranging from entertainment (e.g., theme parks and resorts) to food and beverage to oil and gas. Unfortunately, all these sectors suffered substantially from Covid-19-related disruption. Not only that, this diversified portfolio may have contributed to Rockwell’s recent disappointing earnings results, which saw first-quarter sales decline approximately 7% on a year-over-year basis.
Sure enough, ROK stock posted red ink upon the fiscal disclosures. Because of this, risk-averse investors may want to wait before getting in. For bullish contrarians, though, the decline in Covid-19 cases in January suggests Rockwell’s hard-hit businesses may be due for a comeback.
Following a bout of disappointing financial performances from early 2018 onward, applied sciences and industrial giant 3M generally operated under the radar. At the time, these corporate behemoths were seen as becoming less pertinent in an era where agility was highly prized.
Then, the coronavirus struck and the sentiment changed for MMM stock but not necessarily in a good way.
As you may know from personal experience, at the early stage of the pandemic, N95 masks/respirators became hot commodities. It also didn’t happen to ease the panic when the federal government essentially flip-flopped on the issue, urging the wearing of masks when it initially urged us not to. Because of lingering concerns about the coronavirus and of broader mistrust of government, I still believe MMM stock has an upside narrative on the N95 business alone.
But if I’m wrong about that, you should know that 3M is an underappreciated investment among automation stocks. A key innovation by the company is in the automation of abrasives or the process of metal parts to achieve a desired surface finish. With robotics, 3M can usher in an era of specialized, high-quality parts and components at scale.
Although most people regard Toyota as a purely automotive investment, underneath the hood, the manufacturer legitimately can be included on this list of automation stocks. After all, Toyota and other Japanese automakers revolutionized the concept of fast and efficient production through robotics technology. However, fast typically becomes the enemy of quality. But not at Toyota.
As Fast Company noted a few years back, despite management’s emphasis on forward-thinking innovations, it still pays homage to the past. That’s why amid the symphony of artificial intelligence and machinery, you’ll find human workers execute “painstaking tactile and visual inspections to check and double-check for flaws on the tank and its connections and for holes or weaknesses in the critical fuel line.”
It’s part of the Toyota way, which is one of the reasons why TM stock is intriguing. This is an organization that knows that quality and reliability got it to where it is today. It’s not about to abandon those key values just because some pages on the calendar turned.
As well, Toyota is making inroads into electric vehicles and EV battery technology. For the long term, there’s a lot to like here, which is why you should consider TM stock for any investment strategy.
Mitsubishi Heavy Industries (MHVYF)
With Japan being one of the global leaders in robotics and automation, if you want a compelling stock with a healthy dosing of geopolitical relevance, you should check out Mitsubishi Heavy Industries.
Primarily, the company offers automated solutions across various fields, including computer networks and production support systems. But what I really like about MHVYF stock is its defense solutions.
While more Americans wanted Joe Biden than former President Trump — assuming of course that there was no voter fraud — word on the street is that the Japanese generally favored Trump. True, he’s a boorish character, I don’t think anyone will deny that. But he was tough on China, which of course is a shared rival. The enemy of my enemy is my friend and all that jazz.
Well, with Biden in the White House, there’s some question about his stance on China. He’s tough on Russia but Russia is starting to fracture, if you haven’t noticed. Therefore, the real adversary is China.
The Japanese are very worried about this and I anticipate a huge ramp up in defense spending. Most likely, this will benefit MHVYF stock, so watch this space.
Intuitive Surgical (ISRG)
Over the years, I’ve discussed Intuitive Surgical as a groundbreaking opportunity. Featuring the most advanced technologies, Intuitive Surgical, as the name suggests, specializes in minimally invasive care through the use of robotics. Its flagship device, the Da Vinci surgical system, promotes operational safety, better health outcomes and relative cost savings. In my opinion, it’s one of the best feel-good automation stocks available.
Of course, you may not necessarily feel good about the price. Currently, ISRG stock is steadily approaching the $800 level, so it has a psychological barrier right there. Also, it’s been a strong performer, moving up nearly 36% over the trailing year and up 327% over the past five years. Nevertheless, if you have a patient outlook, Intuitive can still offer more upside.
Mainly, we should see a ramp up of elective procedures over the next few years as either the pandemic fades or we achieve herd immunity through mass vaccination. Obviously, during Covid-19 surges, elective procedures just weren’t appetizing. But pent-up demand could give pricey ISRG stock second wind.
Kion Group (KNNGF)
To me, that spells out extreme relevance as the growth of e-commerce necessitates that all businesses must have an online channel and that channel must be efficient. That’s where Kion Group comes into the picture, helping to integrate advanced automated solutions for organizations across various industries.
Of course, supply chain efficiencies have become much more relevant due to the Covid-19 crisis. For one thing, the global economy is struggling to gain traction. As a result, corporations can’t afford to lose revenue-generating opportunities because of silly, unnecessary hiccups in the supply chain. Therefore, I anticipate long-term growth for KNNGF stock, despite it already enjoying robustly bullish sentiment.
Further, we can’t forget that the pandemic also imposed challenges on the product return component for retailers. This could be the biggest headache for certain companies, particularly the large operations. Again, automation could be the answer, affording KNNGF stock significant relevance throughout the new normal.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.