Robot stocks, which have drastically beaten the S&P 500 over the past decade, are positioned to keep leading the market thanks to new applications, new software, and an advancement of connected technologies, per industry bulls. As these developments make robots more efficient and more versatile, shares of robot makers including Teradyne (TER), Kuka (KU2.Germany), Fanuc (6954.Japan), ABB Group (ABB) and Yaskawa Electric (6506.Japan), may be positioned to reap major rewards for shareholders. Among the promising new technologies include collaborative robots, or cobots, which are smaller robots that work alongside humans. Given they are relatively cheaper and easier to program, these cobots appeal to smaller enterprises, which otherwise would have been unlikely to consider robotic automation, per Barron’s.
5 Ways to Play the Next Robot Wave
- Teradyne; $7.1 billion
- Kuka; $2.4 billion
- Fanuc; $35 billion
- ABB; $42 billion
- Yaskawa Electric; $7.6 billion
As more robots become connected to the cloud, companies are improving their data analytics, saving them big dollars within operations like predictive maintenance. Meanwhile, the robots are capable of doing more, and are serving companies of varying budgets and sizes, helping spur the so-called “next industrial revolution.” Over the past five years, robot deliveries have grown by an average of 19% per year, compared to the 5% annual growth averaged over the past 20 years, per Barron’s reporter Al Root.
Teradyne: Undervalued Stock
In 2015, semiconductor manufacturer Teradyne made a major splash into the robotics space with its $285 million acquisition of Universal Robots. While robots currently make up just 12% of the company’s total top line, the segment is growing at a rapid pace. Root argues that investors are underestimating the high-growth potential of the firm’s next-gen business. From a valuation standpoint, he also suggests that Teradyne shares are an attractive bargain, trading at just 17.2 times estimated 2019 earnings, representing a modest premium to its peers in the semiconductor equipment space, who do not possess high-growth franchises.
Moving forward, Teradyne could see its automation business surge from $261 million in revenue last year, to $1 billion by 2021, according to analyst at KeyBanc. Root indicates that based on multiples paid for other high-growth industrials and for Teradyne’s semiconductor rivals, its stock could grow by 100% or more over the next couple years.
ABB: Banking on Robotics Backlog
Zurich, Switzerland-based ABB has also been highlighted as a benefactor of this next industrial revolution in manufacturing. The firm, which has its U.S. headquarters in Cary, North Carolina, is set to ditch its slower-growth power-grid infrastructure business, in efforts to focus primarily on its electrification and advanced automation technologies, the latter which encompasses robotics.
ABB CEO Ulrich Speisshofer takes a unique approach to the robots-stealing-jobs debate. He agues that better manufacturers will get the work, indicating that economies with the highest penetration of robotics, including South Korea, Germany and Japan, have healthy manufacturing sectors which actually create jobs. This penetration data also points to potential demand. In order to up robot density to meet the three countries cited above, the industry would need to ship four to five million industrial robots, or more than 11 years of production at current rates. For reference, today there exist only about two million robots globally.
Barron’s argues that this robotics backlog should boost robotics makers’ stocks much like aerospace companies benefited from a production backlog when China emerged as an economic power. In three years, jet maker Boeing Co. (BA) saw its backlog jump from three to seven years, while its valuation expanded from 15 times estimated earnings to roughly 18 times.
“Fortunately, you don’t have to rely solely on a Boeing-like multiple expansion with industrial robots,” wrote Root, citing the industry’s stable structure and higher growth outlook.
It's important to note that however bright the outlook for theses robots, they remain vulnerable to disruption from other technologies. That being considered, investors should watch industry trends closely to spot any that could upend the robots.