Robotics stocks seem like a slam-dunk. The trend toward automation has been going on for decades now. Backed by improved artificial intelligence and exponentially greater computing power, it should continue for decades going forward as well.
The one catch with the bullish thesis for the group is that the opportunity isn’t exactly hidden. Valuations generally reflect the bullish thesis; investors have to pay up for exposure to the robotics trend.
So far, however, doing so has been wise. Robotics stocks have done well both in recent years and in the 12 months since markets bottomed last March. With the pandemic potentially accelerating adoption, and the market’s focus on growth over valuation largely intact, there’s no reason the rallies have to end just yet.
For investors who believe the strength in the group will continue, here are five robotics stocks worth at least a long look:
- ABB Ltd. (NYSE:ABB)
- iRobot (NASDAQ:IRBT)
- Revolution Acceleration Acquisition (NASDAQ:RAAC)
- Stereotaxis (NYSEAMERICAN:STXS)
- Intuitive Surgical (NASDAQ:ISRG)
Robotics Stocks: ABB (ABB)
While investors have been focused on fallen American titan General Electric (NYSE:GE), one of Europe’s great companies too has struggled. Like GE, ABB has embarked on a multi-year turnaround strategy. And, like GE, there are early signs of success.
Indeed, after a decade of rangebound trading, ABB stock has broken out. It trades just shy of an all-time peak reached back in 2007. And while the conglomerate isn’t a robotics pure play, optimism toward ABB’s robotics business has driven part of the optimism toward ABB stock.
That’s despite an admittedly soft 2020, during which in ABB’s Robotics & Discrete Automation segment declined 13% year-over-year. But, obviously, the novel coronavirus pandemic was a key factor.
Despite the pandemic, the segment still generated $2.9 billion in revenue. ABB said in its annual report that it expects 10% annualized market growth over the next three years, with the pandemic itself a catalyst.
A business that size with that kind of growth potential can move the needle for ABB stock, even with a market capitalization now above $67 billion. If robotics indeed bounce back in 2021, all-time highs seem in the cards for the stock.
It’s been quite the roller-coaster ride for IRBT stock. Shares first cleared $100 back in 2017 on optimism toward the company’s growth potential. During 2019, it dropped two-thirds from peak to trough as competition intensified and that growth slowed.
Since the pandemic, results have picked up. iRobot seems back on track. The question here is valuation.
IRBT has gained 59% already in 2021. Strong fourth-quarter results last month are playing a role, but the stock also appears to have been part of the Reddit rally in late January. While the stock is down from a brief peak, it’s still kept a good chunk of those gains.
That said, at 25x forward earnings valuation isn’t necessarily prohibitive. Valuation remains a concern, but a patent infringement suit against rival SharkNinja could provide an edge on that front. And in the near term, given a still-heavy short interest, Redditors could take another run.
Robotics Stocks: Revolution Acceleration Acquisition (RAAC)
Surprisingly, there aren’t a lot of young robotics stocks trading yet, but the SPAC (special purpose acquisition company) trend is bringing one to the public market. SPAC Revolution Acceleration Acquisition is merging with Berkshire Grey, a developer of artificial intelligence and robotics primarily for e-commerce providers.
It’s an intriguing deal. Berkshire Grey was founded by a former iRobot executive. It estimates a total addressable market of some $280 billion. Broader e-commerce growth should drive demand, as should the need to keep pace with the likes of Amazon (NASDAQ:AMZN) and manage what are becoming common labor shortages.
There are risks. I’ve talked elsewhere about the hidden dilution of SPAC mergers. Figures from Berkshire Grey and RAAC suggest that 2020 revenue was about $35 million, meaning the current RAAC stock price values the robotics firm at well over 70x revenue. The company is projecting exponential growth, but company projections aren’t always right and are rarely conservative.
In other words, this is an early-stage growth stock: high reward and high risk. But, particularly with a pullback in RAAC after initial optimism toward the merger, it’s an early-stage growth stock worth considering.
The bad news for Stereotaxis is that it hasn’t really delivered on its promise as a provider of robotic systems for cardiovascular applications. But that’s also good news, too, as it leaves more room for improvement ahead.
Similarly, the fact that STXS stock has more than doubled since early November is good news and bad news. It’s bad news because the stock is more expensive. It’s good news because a good portion of the gains came after fourth quarter earnings last month. Guidance for double-digit growth in 2021 and $10 million to $20 million in robotic system revenues sparked optimism and sent STXS to a seven-month high.
If that guidance is a sign that Stereotaxis is starting to deliver on its potential, then there’s plenty of upside ahead. If not, it’s another false start for a company that has disappointed in the past. It’s somewhat strange to see a turnaround story amid robotics stocks, but Stereotaxis certainly qualifies. And if that story plays out, STXS has solid upside even after the gains of the last few months.
Intuitive Surgical (ISRG)
Investors looking for robotics stocks can look to smaller plays in the space. They can consider exchange-traded funds like the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ).
Or they can just buy ISRG stock. Intuitive Surgical is far and away the most valuable of the robotics stocks, for good reason. The company has revolutionized surgical procedures worldwide.
Admittedly, ISRG stock does look expensive at almost 50x next year’s consensus earnings estimate. Last year’s results were soft, owing largely to a pandemic-driven decline in elective procedures.
Neither factor seems to quite offset the bull case, however. Normalcy will return, allowing Intuitive to return to growth. The earnings multiple is high, but in many ways Intuitive has only scratched the surface of its potential. ISRG doesn’t have to be the only robotics stock an investor owns, but any investor bullish on the space probably should have the stock in her portfolio.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.