Robotic: A New Machine Age

President Trump believes that too many jobs are being shipped overseas to take advantage of cheaper labor. But what’s mainly killing jobs is automation, asserts Benjamin Shepherd, editor of Investing Daily’s

We’re recommending two automation companies — the giant ($48 billion market cap) Switzerland-based ABB (ABB) and smaller Massachusetts-based Cognex Corp. (CGNX) with a $5.7 billion market cap.

Both are dominant players in their respective sectors of the machine revolution, and both are expected to reap the rewards when automation around the globe kicks into an even higher gear.

While ABB (ABB) is best known as a maker of power transmission and distribution equipment, it is also one of the top three players in industrial automation, which accounts for more than a quarter of revenue.

ABB also happens to be the only major global robotics maker to build robots in the U.S., opening a new plant in Michigan last year.

Manufacturing-related robotics account for about 70% of ABB’s automation sales, followed by transportation and infrastructure (20%) and utilities (10%).

The stock is a bit expensive, trading at 28.8 times trailing earnings compared to 24.2 times for the industrials sector. But considering that ABB is doing advanced work in robotics just as we’re entering a new machine age, plus it pays a 3.4% dividend yield, I think it can sustain a higher-than-average valuation.

Cognex Corp. (NSDQ: CGNX) is one of the leading makers of those visual sensing systems, with more than 1 million installed. You’ll find its vision sensors, software and systems in automotive plants, food-­processing and beverage-manufacturing facilities, and electronics manufacturers.

Robots that can “see” are critical to most robotic manufacturing systems; Cognex’s products detect defects, monitor production, identify and sort parts, and guide assembly robots.

With the automation trend accelerating, demand for vision systems like those that Cognex produces will only grow. Many investors recognize this or the stock wouldn’t be trading at 42.8 times trailing earnings. Still, I believe there’s enough growth ahead to justify the high valuation.

By: Benjamin Shepherd


Start typing and press Enter to search