In this article we will take a look at the 10 best automation stocks for 2021.
Implementing automation technologies in business processes can lead to improved efficiency, reliability, and speed in many of the tasks that were previously performed by humans. AI, robotics, and other forms of automation have the potential to bring great economic benefits. According to a PwC report, these technologies can contribute up to $15 trillion to the global economy by the year 2030. But the introduction of automation also has a negative consequence: it could potentially take several jobs away from humans. The report states that by the mid-2030s, automation can affect up to 30% of jobs in the world with the largest impact on the transport sector as the development of autonomous and driverless vehicles can make drivers obsolete. One-third of new jobs could no longer exist in the next 25 years. Other sectors that can be largely affected include financial services, storage, and manufacturing.
As the horsepower behind automation develops, the technology is able to perform increasingly complex tasks in no time. This is driving the best automation stocks to strong outperformance this year, with many companies that either use or develop automation technologies boasting double-digit gains against a down market. The 10 best automation stocks for 2021 are gunning after a market which is expected to grow from $10.1 billion in 2018 to $126 billion in 2025, according to a tech research firm Omdia Tractica.
The adoption of industrial automation is significantly growing due to the advent of IIoT (Industrial Internet of Things), 5G technology, smart devices, and a growing demand for high-volume production facilities across several industries. For developed countries like the US, EU, and Japan, this could potentially reverse the slump in productivity growth. According to Omdia Tractica’s estimates, one-fourth of jobs in the US can be automated. Forecasts by MarketandMarkets show that the industrial automation market can reach from $151.8 billion in 2020 to $229.3 billion in 2025 at a CAGR of 8.6% and the best automation stocks for 2021 are set to reap these benefits.
Which Companies are Using Automation?
Companies like Amazon.com, Inc. (NASDAQ: AMZN) are leading the way in the adoption of automation since 2012 when it purchased a robotics company called Kiva Systems. Today, Amazon has more than 200,000 robots working in its warehouses alongside humans. These robots help the company to store up to 40% more inventory in their warehouses and has raised their worker’s productivity from around 100 items per hour to 400 items per hour, according to an Amazon.com, Inc. (NASDAQ: AMZN) spokesperson, reported by the New York Times. It is also estimated that Amazon.com, Inc. (NASDAQ: AMZN) saves $22 million in costs for every automated warehouse.
Similarly, Alibaba Group Holding Limited (NYSE: BABA), the largest retailer in the world, is using robots in their storage warehouses to bring inventory to their human workers who then package them and mail orders. As a group, Alibaba Group Holding Limited (NYSE: BABA) is planning to invest more than $15 billion into its logistics network and automation technologies over the next 5 years according to the Wall Street Journal. United Parcel Service, Inc. (NYSE: UPS) has been using automation technology to identify the fastest route for its delivery vans while PepsiCo, Inc. (NASDAQ: PEP) is using robotic truck loaders and automated picking which helps them create fully automated mixed cases for smaller stores.
Another industry where innovation and automation is rapidly evolving is the healthcare industry. Automation is being used in surgery to perform procedures with precision, minimal incisions, and lesser risk. Even simple tasks such as transporting supplies and medication etc. can be made much more efficient with automated processes. Intuitive Surgical, Inc. (NASDAQ: ISRG) is a California-based company which develops AI based surgical tools and instruments that are being used in 67 countries around the world.
At the core of the global automation revolution are some of the most creative companies that are delivering the best hardware and software solutions to various industries and are ushering in the new age of Artificial Intelligence. As the world is trying to recover from the impact of the COVID-19 pandemic, many companies worldwide are relying more heavily on cost-saving platforms which bodes well for automation stocks.
Automation isn’t just affecting the retail industry. Automated algorithms and robotic trading are also making inroads in the hedge fund industry, which is already struggling due to lackluster performance. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Below are the 10 best automation stocks for 2021 that investors should look into:
Best Automation Stocks For 2021
10. Brooks Automation, Inc. (NASDAQ: BRKS)
Number of Hedge Fund Holders: 25
Market Cap: $7.785 billion
Brooks Automation is a Massachusetts-based company that is involved in manufacturing automation solutions for the semiconductor industry and the life sciences market worldwide. The Brooks Semiconductor Solutions Group segment offers wafer automation and contamination controls solutions and services while its Life Sciences Services segment provides gene sequencing and gene synthesis services. The company caters to market in over 50 countries and recently announced to acquire Precise Automation, Inc for $70 million which is a leading developer of collaborative robots and automation subsystems. Brooks Automation, Inc. (NASDAQ: BRKS)’s quarterly report for the first quarter of 2021 stated that the revenue for the first quarter was $250 million, up 19% year over year. The diluted EPS from continuing operations was $0.36 per share compared to $0.18 per share in the first quarter of 2020. Moreover, the GAAP operating margin was 12.4%, up 730 basis points year over year. Brooks Automation expects revenues to grow further in the second quarter and EPS is expected to be in the range of $0.48 to $0.57.
As of the end of the fourth quarter, 25 hedge funds in Insider Monkey’s database of 887 funds held stakes in BRKS, compared to 17 funds in the third quarter. Ken Fisher’s Fisher Asset Management is the biggest stakeholder in the company, with 1.02 million shares, worth $69.3 million.
9. Cognex Corporation (NASDAQ: CGNX)
Number of Hedge Fund Holders: 31
Market Cap: $15.473 billion
Cognex Corporation (NASDAQ: CGNX) is an emerging automation company that is based in Massachusetts. The company specializes in machine vision products which capture and analyze visual information to automate manufacturing and distributing processes in various industries worldwide. The company has developed a software called VisionPro which consists of patented vision tools for advanced programming and allows users to build vision applications. It caters to the consumer electronics, food and beverage, pharmaceuticals, and medical devices industries. Cognex Corporation (NASDAQ: CGNX) recorded a total revenue of $811 million in 2020 which is a 12% increase from the previous year. It has been listed as one of the best automation stocks for 2021 due to its strong performance in the market with approximately $767 million in cash and investments and no debt. According to the latest quarterly report, Cognex believes revenue growth in 2021 will surpass the earnings of Q1 and Q2 of 2020 due to the increase in demand from the e-commerce sector of logistics. The reported earnings per share in Q4 2020 was $0.39 which exceeded analyst expectations by 37%, according to CNN Business.
Fundsmith LLP currently owns 1.6 million shares of CGNX, worth $128.8 million. Cognex Corporation occupies 0.42% of Fundsmith’s overall equity.
8. Teradyne, Inc. (NASDAQ: TER)
Number of Hedge Fund Holders: 47
Market Cap: $22.085 billion
Teradyne, Inc. designs, develops, manufactures, and sells automatic test equipment worldwide. The company operates through Semiconductor Test, System Test, Industrial Automation, and Wireless Test segments. Its industrial automation segment provides collaborative robotic arms, advanced robotic control software for manufacturing and logistics, and autonomous mobile robots. The company was incorporated in 1960 and is headquartered in North Reading, Massachusetts. Teradyne is chosen as the 10 best automation stocks for 2021 as its stock outperformed earnings estimates in all the trailing four quarters. In the last reported quarter, its best performing sector was the Industrial Automation segment which saw a revenue growth of 4% in the fourth quarter of 2020 compared to the previous year. The total revenue of Teradyne, Inc. (NASDAQ: TER) also grew by 36% to $3.1 billion in 2020 as compared to $2.29 billion in 2019. As reported in the company’s press release, Teradyne is on track to exceed to its sales and profits in 2021 due a notable recovery in the automotive related semiconductor test shipments. It also announced a quarterly dividend of $0.10.
Joe Dimenna’s ZWEIG DIMENNA PARTNERS currently holds 123,900 shares of Teradyne that amounts $15.1 million. TER occupies 1.04% of ZWEIG DIMENNA’s total portfolio.
7. Rockwell Automation, Inc. (NYSE: ROK)
Number of Hedge Fund Holders: 35
Market Cap: $31.318 billion
Rockwell Automation, Inc. provides industrial automation and digital transformation solutions. Its products include simulation software, programmable automation controllers, human machine interface products, industrial computers, and independent cart technology products amongst others. It serves a range of industries including automotive, semiconductor, logistics and warehousing, life sciences, food and beverage, and oil and gas etc. Headquartered in Wisconsin, Rockwell Automation, Inc. (NYSE: ROK) performance has placed it in the 10 best automation stocks for 2021 list. The company earned a net income of $262.7 million or $2.25 per share in the fourth quarter of 2020 compared to only $8.1 million or $0.07 per share in the same quarter of the previous year. Rockwell Automation’s fourth quarter report of 2020 states that the pre-tax margin was 19.1% compared to 3.3% in 2019. This increase can be attributable to the PTC adjustments. Moreover, the company projected an overall sales growth of 6-9% in 2021. The total revenue of the company was $6.3 billion in 2020 with a market valuation of $31.318 billion.
According to our database, the number of ROK’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 35 hedge funds that hold a position in Rockwell Automation compared to 44 funds in the third quarter. The biggest stakeholder of the company is Ian Simm’s Impax Asset Management, with 540,117 shares, worth $135.4 million.
6. Emerson Electric Co. (NYSE: EMR)
Number of Hedge Fund Holders: 46
Market Cap: $55.221 billion
Emerson Electric Co. designs and manufactures technology and engineering products for industrial, commercial, and consumer markets worldwide. It operates through Automation Solutions and Commercial & Residential Solutions segments which serve the oil and gas, chemicals, power generation, metals and mining, and municipal water supply markets. The company’s stock has seen a price change of 13.9% so far in 2021. Emerson is currently shelling out a dividend of $0.5 per share with a dividend yield of 2.21%. The company’s 2020 annualized dividend of $2.02 is up 1% from 2019. Overall, Emerson Electric Co. (NYSE: EMR)’s dividend has increased 5 times on a year-over-year basis with an average annual increase of 1.31%. With a total revenue of $16.78 billion in 2020 and a profit margin of 12.41%, Emerson has landed the 6th spot in 10 best automation stocks for 2021.
As of the end of the fourth quarter of 2020, Ken Griffin’s Citadel Investment Group owns 3 million shares of Emerson Electric Co. worth $241.6 million. EMR accounts for 0.06% of Citadel Investment Group’s total portfolio.
In one of their investor letters, Fiduciary Management highlighted a few stocks and Emerson Electric Co (NYSE:EMR) is one of them. Here is what Fiduciary Management said:
“Emerson Electric offers a wide range of products and services primarily in the areas of Automation, HVAC & Refrigeration, and Construction. The company is comprised of Automation Solutions, Climate Technologies, and Tools & Home Products. Emerson has market-leading positions thanks to their domain knowledge, innovation (differentiated technology), and services & solutions capability to address complex challenges in critical markets. Automation Solutions enable customers to maximize production while reducing costs, and Climate Technologies improves energy efficiency, enhances comfort, and protects food quality. Although a cyclical company, nearly 40% of total sales come from the maintenance, repair and optimization portion of Automation Solutions (significant installed base). The replacement nature of Climate Technologies also helps this part of the business be less cyclical in a downturn. In addition to contingency plans in the current economic environment, the company’s balance sheet is positioned very conservatively (strong investment-grade credit) and they have plenty of liquidity. With a compelling valuation, we feel that Emerson is an attractive investment opportunity over our time horizon.”
5. Eaton Corporation plc (NYSE: ETN)
Number of Hedge Fund Holders: 41
Market Cap: $57.346 billion
Eaton is Dublin-based power management company that has become a leader in industrial automation. It provides sensors, switches, and automated factory equipment to do things such as improve power management and maintain equipment before anything breaks down. The company has signed an agreement to acquire a 50 percent stake in Jiangsu YiNeng Electric’s busway business which manufactures and markets busway products in China. The company’s quarterly earnings report shows earnings per share of $0.13 and 20.7% operating margins which was up 130 basis points in 2020 compared to the same quarter of 2019. Eaton’s 2020 revenues were $17.9 billion, and its products were used in more than 175 countries worldwide. It is one of the best automation stocks to look out for in 2021.
With a $161.5 million stake in Eaton Corp., Ken Griffin’s Citadel Investment Group owns 1.3 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 41 hedge funds held stakes in ETN as of the end of the fourth quarter, versus 35 funds in the third quarter.
Sound Shore Management, in their Q4 2020 investor letter, mentioned Eaton Corporation plc (NYSE: ETN). Here is what Sound Shore Management has to say about Eaton Corporation plc in their Q4 2020 investor letter:
“Similarly, our investment in Eaton is another great Sound Shore case study. Eaton is an electrical equipment maker that we were able to purchase in 2018 when it was trading below normal at 13 times earnings. The stock gained 31% in 2020 and outperformed its industrial peers. Over the last ten years, Eaton has methodically repositioned its business mix to a high value-add, electrical parts and aerospace business that now represents greater than 75% of operating earnings. This transformation has positioned the company well for the surge in demand for electric energy efficiency and environmentally friendly solutions. In addition, Eaton’s experienced management is focused on capital efficiency and has executed on improving organic revenue growth and improved profitability. The company is generating substantial free cash flow and has returned 6% of capital to shareholders through dividends and buybacks for the year. Even after the stock’s recent performance, it is still reasonably valued on free cash flow and remains a holding.”
4. ABB Ltd (NYSE: ABB)
Number of Hedge Fund Holders: 8
Market Cap: $66.69 billion
ABB Ltd is a Swedish-Swiss multinational corporation which is highly regarded as one of the best automation stocks today. Founded in 1883, the company is headquartered in Zurich and primarily operates in robotics, power heavy electrical equipment, as well as automation technologies. ABB is at the forefront of next-generation manufacturing equipment and recently made news for its latest satellite-mounted optical equipment that can measure the level of greenhouse gases in the atmosphere. The company has a strong robotics and discrete automation segment which develops industrial robots, robotic solutions and systems, field services, and digital services. ABB Ltd also has a strategic collaboration with International Business Machines Corporation (NYSE: IBM). In the fiscal year of 2020, the company reported a total revenue of $26.13 billion. In 2021, ABB had a high first quarter margin of 13.8% and it registered order growth of 6% in 2020 as compared to 2019. The EPS is $2.44 as reported by Yahoo Finance. According to ABB’s latest quarterly report, the Operational EBITA margin for the Group is expected to significantly improve year-on-year, to approximately 14%. All business areas are expected to increase their margin by more than 100 basis points which is in line towards the company’s 2023 targets. The sales growth for the next quarter of 2021 is expected to be 11.10%. The company seems to be on track to be one of the best automation stocks for 2021.
Our database shows that 8 hedge funds held stakes in ABB as of the end of the fourth quarter of 2020, versus 13 funds in the third quarter.
3. Intuitive Surgical, Inc. (NASDAQ: ISRG)
Number of Hedge Fund Holders: 49
Market Cap: $102.257 billion
Intuitive Surgical has become a global technology leader in robotic-assisted and minimally invasive surgery. The company designs, develops, and manufactures da Vinci surgical instruments and related accessories that are distributed in the US and across 67 countries. According to the company’s website, its surgical system was used for over 8.5 million surgical procedures in 2020. On a quarterly basis, year-over-year, procedures grew 10% in Q1 2020, decreased 19% in Q2 2020, grew 7% in Q3 2020, and grew 6% in Q4 2020. The company also launched its first venture capital fund valued at $100 million to invest in companies that share Intuitive’s vision in advancing healthcare outcomes. In February 2020, Intuitive Surgical announced its acquisition of privately held Orpheus Medical. Its stock leads its peers in terms of market value and average daily trading volume and is one of the best automation stocks for 2021. As of the Dec. 23 close of 2020, ISRG stock had risen more than 29% year to date. The company’s revenue increased to $3.4 billion in 2020, compared to $3.2 billion in 2019. By the end of 2020, ISRG had $6.87 billion in cash and cash equivalents, as stated in the company’s annual report.
As of the end of the fourth quarter, there were 49 hedge funds in Insider Monkey’s database that held stakes in Intuitive Surgical, compared to 50 funds in the third quarter. McKinley Capital Management, with 6,504 shares of ISRG, is the biggest stakeholder in the company.
Ensemble Capital, in their Q1 2021 investor letter, mentioned Intuitive Surgical, Inc. (NASDAQ: ISRG). Here is what Ensemble Capital has to say about Intuitive Surgical, Inc. in their Q1 2021 investor letter:
“Notable detractors to the Fund’s returns this quarter (included) Intuitive Surgical. Intuitive Surgical’s (6.3% weight in the Fund) growth slowed in 2020 as COVID hit the brakes on many elective surgeries. Given continued COVID-related risks in the US and Europe in 2021, it’s still unclear as to when elective surgeries recover to more normal levels. As such, hospitals may be holding off on planned surgical robot investments until demand rebounds. That said, in Asia, where COVID has been well contained, Intuitive Surgical’s procedures and systems utilizations improved, which bodes well for recovery in the US and EU. Most procedures can’t be delayed indefinitely or canceled, so we continue to expect a resumption of strong, durable growth as the pandemic recedes.”
2. Applied Materials, Inc. (NASDAQ: AMAT)
Number of Hedge Fund Holders: 61
Market Cap: $125.545 billion
Another company with the best automation stock for 2021 is Applied Materials which is a global leader in the manufacturing of tools and services for fabrication of semiconductor chips. The company provides integrated solutions such as factory automation software which optimizes productivity. The Applied SmartFactory is powered by AI based technologies that mature in high volume factories. Applied reported a revenue of $5.16 billion in 2020. On a GAAP basis, a gross margin of 45.5%, operating income of $1.28 billion, and an earnings per share of $1.22 in its latest quarterly report. CEO Gary Dickerson is enthusiastic about the company’s performance and says that their broad portfolio and exposure to technology inflections have put them in a great position to outgrow their markets in 2021.
ZWEIG DIMENNA PARTNERS is one of the 61 hedge funds tracked by Insider Monkey having stakes in AMAT at the end of the fourth quarter. The fund owns over 173,290 shares of the company.
1. Honeywell International Inc. (NYSE: HON)
Number of Hedge Fund Holders: 45
Market Cap: $158.989 billion
Being a leader in digitization, Honeywell International is at the forefront of delivering software and services that help customers in overcoming uncertain competitive pressures to achieve business outcomes. Its industrial automation and control segment provides a wide range of open control systems, software, and other related services worldwide. Honeywell has overdelivered in all guided metrics in the first quarter of 2021 according to the company’s latest issued quarterly report which has earned it the top spot in the 10 best automation stocks for 2021 list. The first quarter sales amounted to $8.5 billion which exceeded the expected range by $250 million. Honeywell also repurchased $0.8 billion worth of its own shares and has made five strategic investments. The adjusted earnings per share is $7.75 and is expected to increase up by 15 cents in the next quarter. Overall, the company reported a total revenue of $32.63 billion in 2020 with a profit margin of 14.18%.
A total of 45 hedge funds tracked by Insider Monkey were bullish HON at the end of the fourth quarter of 2020, up from 41 funds a quarter earlier.
In their Q3 2020 investor letter, Madison Investments highlighted a few stocks and Honeywell International Inc (NYSE:HON) is one of them. Here is what Madison Investments said:
“This quarter we are highlighting Honeywell (HON) as a relative yield example within Industrials. HON is a leading industrial conglomerate with an increasing focus on software and automation. We believe its global scale, history of innovation and strong culture focused on continuous operational efficiency create a sustainable competitive advantage. HON operates four segments including Aerospace, Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions. These businesses serve diverse end markets including aerospace, U.S. defense contractors, e-commerce and oil and gas customers.
Our thesis on HON is that it will successfully leverage its software technology across its huge installed base of customers and products. Its installed base includes approximately 36,000 auxiliary power units, 25,000 engines, 20,000 wheels and brakes, 20,000 flight management systems and 10,000 units of communication hardware. Importantly, HON software technology is integrated into mission-critical operations of its customers including cockpit control in aircraft flights, warehouse automation in manufacturing and connected solutions in commercial buildings. We believe its technology advantage is due to above-average spending on research and development (R&D). For example, in key aerospace businesses, HON spends 4.5% of sales on R&D compared to 2-3% spending by most competitors.
The fund purchased HON in the quarter after it reached a reasonable valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the purchase price in the upper $160s, the stock traded for less than 20x estimated earnings expected over the forward 12 months. We believe this valuation can grow over time if HON continues to innovate and create new products, while its underlying end markets like aerospace recover over time. It also has an A rated balance sheet (as rated by S&P), an absolute dividend yield of 2.2%, and an attractive relative yield of 1.3x versus the S&P 500, which is the highest relative yield since 2012, as shown below. The company also has a history of dividend increases as it has grown dividends per share by 12.5% per year on average over the last five years.
Risks to the thesis include a prolonged economic downturn that results in sustainable declines in its key end markets like aerospace. We estimate about 40-45% of sales are exposed to these end markets. Other risks include lost market share if customers don’t like its evolving software offerings, and the risk the company makes a value-destroying acquisition. We think this last risk is relatively low as HON has a history of successful acquisitions.”
You can also take a peek at George Soros’ Top 10 Stock Picks and 15 Most Valuable Cloud Computing Companies.
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Disclosure: None. 10 Best Automation Stocks For 2021 is originally published on Insider Monkey.
