Stocks in robotics to watch in the growing robotics industry
Robots might be taking over, but at least their revolution is giving stocks in robotics some good returns. The robotics industry is expected to grow from a current size of USD $27.7 billion to $74.1 billion by 2026. And its effects will be felt in many sectors:
- Defense: $487 billion is expected to be spent on AI and robotics in defense from 2018-2027, with the US, China, Russia, and Israel leading research, implementation, and sales.
- Healthcare: The market for medical robotics systems was valued at $2.25 billion and is projected to reach $10.7 billion by 2026.
- Consumer electronics: By 2050, 16% of the global population will be over 65, and domestic service robots are ready to help seniors, with the number of units sold growing 34% in 2019 alone.
Why now? The robotics industry has been steadily growing in importance since the 1960s, but a series of large-scale economic shifts are kicking automation efforts into overdrive — accelerating robotics stocks over the past 5 years.
- Rising labor costs: Q1 2021 industrial robotics sales increased 20% year-over-year as businesses offset higher wages with more automation.
- Falling equipment costs: ARK Investment Management predicts that industrial robot unit costs will nosedive 65% in the 10 years leading up to 2025, from an average $31k to just $11k per unit.
The impact: Investors with portfolios holding tech stocks and cryptocurrencies have been on a bumpy ride since the beginning of 2021, but there are 2 robotics companies and an exchange-traded fund (ETF) that could raise rocky portfolios, with 5-year annualized returns that beat the S&P 500.
- SPY vs AI: the SPDR S&P 500 Trust (NYSE:SPY) tracks the S&P 500 index, which contains 500 of the largest US companies, and boasts 5-year annualized returns of 17.90%.
- While the SPY isn’t the only ETF tracking the S&P 500, it is the largest and most popular, making it an industry standard for comparisons.
With its wide diversity of holdings and its status as the index for average investors to watch, the S&P 500 is an ideal benchmark for robotics stocks performance.
Contents: Robotics Company Stocks:
- Stock in Robotics #1: Stryker Corporation
- Stock in Robotics #2: AeroVironment Inc.
- Robotics ETF: Robo Global® Robotics & Automation ETF
Stock in Robotics Stock #1: Stryker Corporation
If you recently visited an American hospital for total hip or knee surgery, your doctor was likely assisted by a Mako SmartRobotics product. Developed by Stryker Corporation (NYSE:SYK), they combine cutting-edge 3D CT scanning and haptic technologies to maximize surgical effectiveness and minimize invasiveness.
Company Overview: Hailing from Kalamazoo, Michigan, Stryker is a Wall Street heavy hitter with the fundamentals to prove it.
- Ticker: (NYSE:SYK)
- Market Cap: $100.9 billion
- 5 year annualized returns: 20.02%
- PE Ratio: 50.83
Catch me up: Founded all the way back in 1941, Stryker is a common name in the medical industry with a history of consistent sales growth and profits:
- In its recent second-quarter earnings, Stryker reported 55% sales growth, amounting to $4.29 billion in revenue compared to $2.76 billion in the same period last year.
- The high sales growth came from a drop in sales at the start of COVID. Stryker previously averaged 9-10% sales growth prior.
- Stryker’s also undergoing a leadership change as President and COO Timothy J. Scannell retired after 31 years in the company.
What’s the big deal? Stryker Corporation is gaining attention because of the way it has weathered pandemic-induced medical industry disruptions and came back swinging.
- Stryker gained 41% over the past 12 months compared to the S&P 500, which gained 33.39%.
- It also reported 2020 revenues of $14.4 billion after shaking off order shortages from hospitals pivoting to COVID care.
Takeaway: At 50.83, the company’s PE ratio is high — really high — which may spook some investors, who might read it as a sign that the stock is overpriced. But you should consider:
- The context: while the average PE ratio for companies in the S&P 500 is between 13 to 15, tech companies, like Stryker, maintain higher valuations.
- The meaning: PE ratios show what buyers are willing to pay for future growth, which is just one — but not the only — factor investors should consider.
Stock in Robotics Stock #2: AeroVironment Inc.
Readers who have served with the Marines or Army in the last 20 years will be familiar with the RQ-11 Raven, an unmanned aerial vehicle (UAV) developed by defense contractor AeroVironment Inc (NASDAQ:AVAV).
Company Profile: Founded in 1971 and headquartered in Arlington, Virginia, AeroVironment Inc. is a high-flying robotics stock with solid prospects.
- Ticker: (NASDAQ:AVAV)
- Market Cap: $2.57 billion
- 5 year annualized returns: 33.05%
- PE Ratio: 108.11
Catch me up: Their innovative technologies keep AeroVironment relevant in an industry that sees companies rise and fall in rapid succession.
- The company was recently highlighted as a major player in the EV charging market, which is expected to reach USD $2.76b by 2027.
- Even as the US military pulls out of Afghanistan, demand for UAVs remains steady, with AeroVironment selling another $15.9m in systems to various branches.
What’s the big deal? Hedge funds favor this stock as a defensive buy — stocks with stable earnings regardless of the economic condition.
- In March, ARK reported AeroVironment holdings of $65.1m.
- At $23.5m, the second largest holding belongs to Fisher Asset Management.
As a result, this stock has a certain “smart money” pedigree that makes it alluring for smaller investors.
Takeaway: With a stratospheric PE of 108.11, it might come as a surprise that some insiders are cashing out.
- Chairman of the Board, Timothy Conver, sold USD $17m worth of shares at $113 a pop, when the market price was $99.68.
- Company insiders weren’t recorded purchasing any further stocks in the company throughout this same period, either.
While these figures have troubled industry watchers, insider ownership of AeroVironment Inc remains high, at 6.6%, supporting the belief that the company fundamentals remain strong. This optimism reflects a company history whose long history is a rarity in an industry where the biggest players are often young and hungry. Here is a company that has been in business since the 70s and shows few signs of slowing down.
Robotics ETF: Robo Global Robotics & Automation ETF
For cautious investors who want to participate in the robotics revolution, without the anxieties that come with investing in such a fluid market, there are plenty of exchange-traded funds (ETFs) available.
ETF Overview: The Robo Global Robotics & Automation ETF (NYSE:ROBO) offers investors diversified and cost-effective exposure to companies in the robotics, AI, and healthcare technology spaces.
- Ticker: (NYSE:ROBO)
- Top 3 Holdings: Intuitive Surgical Inc. (NASDAQ:ISRG) (1.84%), ServiceNow Inc. (NYSE:NOW) (1.80%), Harmonic Drive Systems Inc. (6324.T) (1.72%).
- Number of Holdings: 84
- 5 year annualized returns: 20.80%
- Management fees: 0.95%
What’s the big deal? ETFs don’t always offer the same 5-year highs as AeroVironment stocks, but they remain a competitive purchase and one investors should consider if they’re new to robotics.
- ROBO had a big 2020, closing out the year with a 52-week high that saw its price soar 102.4% despite the growth challenges posed by the pandemic.
- The ETF was hit with big outflows of $204m in April 2021, but this has been attributed to sector rotations and doesn’t seem to have affected the fund’s overall positive media.