You’ve likely heard the famous Chinese proverb, “Crisis brings opportunity.” That aphorism is arguably the best summary of this year’s financial market developments, for the economic turbulence of 2020 has also translated into big profit opportunities for investors as new industries have emerged or rapidly expanded in the wake of the COVID crisis.
Beyond the pandemic, however, there is also a “crisis” of sorts in employee productivity in many developed countries—including the United States. The slowdown in productivity growth, along with increasing worker safety concerns, have inspired many companies across several major sectors to turn toward replacing human workers with machines. And as it turns out, the shift toward automation is becoming increasingly visible in everyday life.
On a recent trip to Walmart, for instance, I did a double take when an unmanned crate-moving vehicle came beeping down the aisle. It drove home for me the reality of a trend that we’ve all seen coming for some time, namely the replacement of repetitive manual labor tasks with automated machine labor. Indeed, the events of this year have only accelerated this movement away from manual labor toward greater automation.
With that said, let’s examine some companies that are making some big waves in the robotics and automation industry.
Robotics Stocks and ETFs to Consider
Global X Robotics & Artificial Intelligence ETF (BOTZ)
The Global X Robotics & Artificial Intelligence ETF (BOTZ) has been one of this year’s top-performing exchange-traded funds, and for good reason: the longer-term trend toward automating manual tasks via computers and robots has accelerated due to the economic dislocations created by COVID-related shutdowns.
This ETF invests in companies that stand to benefit from the increased adoption and use of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots and autonomous vehicles. It also offers an excellent way to participate in what looks to be a profitable secular growth trend.
Stryker Corp. (SYK)
When most people think of robots, orthopedic implants don’t often come to mind. Yet the market for robot-assisted orthopedic surgery is expanding at a rapid clip, thanks to recent advances in robot technology. A leader in this space is Stryker Corp. (SYK), a supplier of surgical instruments and supplies. Through its 2013 acquisition of MAKO Surgical (as well as other companies since then), Stryker has significantly expanded into the medical robotics field.
MAKO’s robotic systems have been heavily used in hip and knee replacements in recent years, making them one of the top firms in this field. The procedure involves robot-assisted bone mapping, joint alignment and orthopedic implants.
Through Stryker, MAKO also manufactures robotic arm assistance platforms, including the Robotic Arm Interactive Orthopedic System (RIO), a device which assists surgeons during knee resurfacing operations (a minimally invasive surgery for younger, active patients with early osteoarthritis).
Analysts see significant top- and bottom-line improvement for the firm next year, as this year’s COVID-induced reduction in elective medical procedures presumably reverses while demand for surgical equipment correspondingly increases.
Analysts are also calling for a recovery in Stryker’s bottom line in 2021, with per-share earnings of $8.70 predicted for next year (compared with this year’s EPS of $6.20). The stock looks like a worthwhile longer-term play on the robotics and automation growth theme.
Stryker (SYK) is one of the best robotics stocks today.
Teradyne Inc. (TER)
Teradyne Inc. (TER) is a leading global supplier of automated test equipment used in the semiconductor, computing, automotive, aerospace and consumer electronics industries. Its robotics business is divided into four groups: Universal Robots, Mobile Industrial Robots, AutoGuide and Energid.
Teradyne’s robots assist production workers on industry floors, helping with tasks that include packaging, gluing, painting, polishing and assembly. It also provides autonomous mobile robots for the transportation, healthcare, pharmaceutical spaces, as well as modular industrial robots and robotic systems used in agriculture, aerospace and defense applications.
Despite shutdown-related obstacles related to industrial automation (which showed signs of incremental improvement this summer), Teradyne posted remarkably solid second-quarter earnings, and from a financial perspective was “stronger than ever” (in the words of management). The firm generated $178 million of free cash flow in Q2 and ended the quarter with approximately $1.1 billion in cash, with no short-term debt. Revenue was up 49% year over year and up 46% for the first half of 2020, while per-share earnings were eye-poppingly higher (up 100%) at $1.33.
ABB Ltd. (ABB)
Swiss-Swedish multinational company ABB Ltd. (ABB) provides a variety of power and automation technologies which feature robots used in several industrial applications, including: welding, materials handling, machine tending, painting, packing and assembly.
The company’s first- and second-quarter revenues were impacted by virus-related shutdowns, as industrial robotics-related orders declined.
Analysts see continued headwinds for the remainder of 2020 and into early 2021, but foresee a meaningful rebound beginning in the second half of next year and continuing into the next several years as industry around the world gradually recovers from the effects of this year’s lockdowns. Moreover, the consensus predicts a sizable bump to ABB’s per-share earnings for 2020, predicted to increase 108%.
It might be a while before ABB shares reflect the anticipated demand recovery for its industrial robots, but I like the stock’s longer-term potential.