3 U.S. Stocks for Investing in Industrial Robotics
In a recent article, we waxed poetic about the potential of industrial robotics for good reason. With an estimated +15% annual growth in industrial robot supply forecasted for the next few years, and a 37% majority share of industrial robotics in the global robo tech market projected until 2025, getting retail exposure to this piece of the pie seems like a very compelling investment thesis.
There are already vehicles in the market which claim to provide exposure to the robotics segment, such as the Robo Global Robotics & Automation Index ETF (NASDAQ:ROBO), which returned +39.9% in the past rolling 12 months vs Nasdaq at +23.76%. The question becomes, how many of these companies in the ETF are actually exposed to the industrial robotics business? In this article, we’re going to take a look at the three US-based listed companies in the ROBO ETF that might give you exposure to industrial robotics (we covered Cognex in an earlier article for you). For the detailed market analysis, check out our earlier article ‘Investing in Industrial Robots for Retail Investors’ where we looked at some of the companies in the below list of market leaders in industrial robotics:
Firstly, we want to clear up the lingo surrounding industrial applications, as the terms ‘automation’ and ‘robotics’ are used widely, and sometimes interchangeably. General consensus in the industry community emphasizes that the key difference is autonomous operation: automation refers to a broader set of tools and solutions where machines do their work in a pre-programmed manner, this way making operations more efficient, while robots (if we use the term in a narrower sense) are reacting to outside stimuli, and can change timing or sequence of a process, plus they can actually learn and develop. Basically all robots are a subset of the broader automation theme, or automation is the predecessor of robots if you will. Now let’s take a look at the three companies that are said to provide investors with exposure to industrial robotics.
Lincoln Electric (NASDAQ:LECO)
Headquartered in Cleveland, Ohio, and founded in 1895, Lincoln operates 48 manufacturing locations in 19 countries and generated $2.5B in revenue in 2015. They are admittedly the global market leader in welding, cutting and joining products as stated in their vision, serving 15 industries like automotive, shipbuilding, thermal energy, LNG, wind and nuclear power and structural steel.
This is definitely an old-school industry, but Lincoln is pushing forward with robotic welding systems (including fully customized ones) and material handling under their Automation division. Here’s a look at one of their robotic welders:
Lincoln has also made an acquisition in the area in August 2015 buying Rimrock Holdings Corporation, a then privately held manufacturer and integrator of industrial automation products and robotic systems. As an extra, they recently announced the manufacture and usage of robotic welding trainers for the market as well.
Investors should take note that there is a predicted shortage of welders in the U.S. at the moment. The American Welding Society (that’s a thing) estimates a 290,000 job deficit in welders by 2020. With the average welder making between $30-40K USD a year, these welding robots may soon be “freeing up human welders to do more value-added activities” – like something entirely not related to welding.
Lincoln does not break out the results of their Automation subdivision in their quarterly or annual reports, so we can only assume there is an internal push towards the automation direction based on the recent company acquisition and broad strategic statements by themselves. This is all well and good, but the company as a whole is far from being a pure play on industrial robotics.
Market Cap: $51 billion
5-Year Return: +8%
1-Year Return: +37%
Hailing from the mountainous country of Switzerland, ABB is a mammoth of a company with $35.5B USD in revenue on 2015, that works closely with utility, industry, transport and infrastructure customers in roughly 100 countries. They are organized into 4 main divisions:
- Electrification Products (EP): technology across the full electrical value chain from substation to the point of consumption
- Robotics and Motion (RM): motors, generators, drives, mechanical power transmission, robotics, wind and traction converters
- Industrial Automation (IA): products, systems and services designed to optimize the productivity of industrial processes
- Power Grids (PG): power and automation products, systems, service and software solutions across the generation, transmission and distribution value chain
RM and IA divisions accounted for 42% of revenues in 2015, and has been consistently recognized as one of the world’s top innovators. Their commitment to robotics is splashed all over their corporate website, and they’ve put together 200+ case studies on successful robotics implementations in case you still think humans are the way forward. From painting to welding to just about any industrial application you can think of, ABB offers an industrial robot to fit everyone’s needs. Here’s a look at just some of their industrial robots on offer:
By the end of 2016, ABB achieved a milestone of 50,000 robots manufactured in China, which gives you a good sense of scale of their operations. In June of last year, they announced the delivery of the 300,000th robot to clients.
Remember when we wrote about Rethink Robotics and their aptly named “collaborative robots” that will most likely collaborate you out of your job? ABB is also doing something very similar. Check out YuMi below:
You see that guy grimacing uncomfortably in the picture? That collaborative robot has now freed him up to “do more value-added activities” – and probably also replaced 3-4 of his mates. Investors in Lincoln Electric should take note that ABB claims to be the leading supplier of welding robots. With the NASDAQ returning nearly +100% over the past 5 years, investors in ABB have to be kicking themselves and questioning why the company is not at least keeping up with the market.
Rockwell Automation (NYSE:ROK)
Market Cap: $18 billion
5-Year Return: +73%
1-Year Return: +53%
Rockwell is a large global automation player founded in 1928, headquartered in Milwaukee, Wisconsin, with 22,000 employees and $6.3B USD sales in 2015. Their offering spans the entire spectrum of products necessary for automated process operation, plus the software and services needed to maintain this. A quick scan of their most recent investor presentation shows not one mention at all of the word “robot”.
Their two primary revenue segments are as follows:
- Architecture and Software (45%)
- Control Products and Solutions (55%)
Their most recent investor presentation talks about “bringing the connected enterprise to life”, and we can’t help but think about the work GE is doing in this space with their “Industrial Internet of Things“. At their 2016 Annual Automation Fair in Atlanta, this was one of the main topics presented by Rockwell.
Other interesting topics they discussed at the Automation Fair were self-learning machines, robots and humans co-working safely, and augmented reality for engineers. It seems that they are building an automation platform along with the connectivity needed for industrial robots to play on nicely.
The three companies we’ve looked at are big and stable, with a market leading operation in one or more of their respective fields, and consequently their size provides a solid base to spend on innovation in industrial automation and robotics. Lincoln Electric alone could be a good play on the shortage of welders in the U.S. theme. Based on public info available, it seems industrial applications are still skewed towards general automation, with the ‘intelligent’ robotics part seen as an emerging field of interest. With all three companies not even managing to beat the Nasdaq over the past 5 years, let’s hope industrial robotics gives them the kick in the pants they need.
If you’re looking for well-diversified value companies that includes robotics, setup a motif and buy all three. If you’re interested in pure play exposure to cutting-edge innovation and robotics technology, probably worth looking elsewhere.
Here at Nanalyze, we complement our tech investments with a portfolio of 30 dividend growth stocks that pay us increasing income every year. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.