We recently compiled a list of the 10 Cheap Robotics Stocks To Buy. In this article, we are going to take a look at where Illumina, Inc. (NASDAQ:ILMN) stands against the other cheap robotic stocks.
The progress of Western civilization is built on industrialization. The late 19th century and the mid 20th century solidified the role of machines in factories, leading to vast output improvements and cost benefits that benefited society in the form of high quality, mass produced goods.
Now, the 21st century is the age of information courtesy of the Internet. In developed economies, the services and tertiary sectors reign supreme because human intellect is valued more than the ability to do grunt work. But this doesn’t mean that companies aren’t focusing on industrial production. In fact, estimates from the International Federation of Robotics (IFR) show that the rate of the number of installed industrial robots in America more than doubled in the decade between 2008 to 2018. In 2008, 15,170 industrial robots were installed in the US while this figure had grown by almost three fold to 40,373 in 2018.
This growth is important given that most major American consumer electronics companies shifted their manufacturing and production to China in the 1990s to take advantage of the low costs offered. In fact, this criticality of robots to manufacturing is made clear by the fact that 80% of the industrial robot installations in America in 2018 were in the manufacturing sector.
However, just because America had added tens of thousands of robots by 2018 doesn’t mean that the rest of the world is sitting ‘idle.’ As per the IFR, America was not among the top three countries by the number of industrial robots installed in 2017. This title went to China, which had installed 501,185 industrial robots by 2017 and added another 154,032 units in the following year. In second and third places were Japan and South Korea, with 297,215 and 273,146 industrial robot installations, each. However, having the highest number of robots installed in the world is only one side of the picture. Like humans, robot productivity is also best in groups, and South Korea, Singapore, and Germany were the three highest countries in terms of robot density in 2017.
The key driving factor behind the growth of industrial robots is lower cost according to Cathie Wood’s Ark Invest. In its research, the firm points out that industrial robot costs have dropped by 50% every time their production has doubled. This cost reduction doesn’t mean that robot quality is dropping, since according to Ark’s data, robot performance has improved “33-fold in seven years.” Ark concludes by pointing out that after Jeff Bezos’ eCommerce company installed the Kiva mobile robots, its time from click to ship at a warehouse dropped by 78%.
But what about the value added by robots? After all, the primary motive of a business is profit and if the robotics industry is to thrive then it has to add economic value. On this front, data shows that across industries worldwide ranging from agriculture to construction, mining, and utilities, industrial robots added a cool $211.7 trillion value in 2017. Within these, metals and electronic manufacturing, construction, and chemical manufacturing benefited the most. Across these industries, industrial robots added $2.2 trillion $1.3 trillion, and $1.2 trillion in value, respectively,
Delving deeper, one industry that has seen a lot of hype when it comes to robots particularly humanoid robots, is the automotive industry. This is primarily due to Elon Musk’s belief that his car company can become a humanoid robot company in the future to generate a trillion dollars in revenue per year. We covered this in detail as part of our coverage of $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley, so you should check it out for a detailed primer on the humanoid robot industry.
But while Musk and MS might be bullish for humanoid robots, the natural question to ask when critically analyzing their estimates is whether automotive manufacturing demand is also driving broader industrial robot demand. Looking at the data, we see a mixed picture over the years. For instance, in 2017, 2018, and 2019, the automotive industry added 125,700, 125,581, and 105,379 new robots, respectively. During the same years, the electronics manufacturing industry added 121,955, 105,153, and 87,712 new robots, respectively. So, before the coronavirus pandemic, the automotive industry was the world’s largest customer for industrial robots. Yet, in 2020, this picture changed, as in 2020, 2021, and 2023, the number of new robots demanded by the automotive industry was 79,849, 119,405, and 136,130 new robots, respectively. On the other hand, the electronics industry added 109,315, 136,670, and 156,936 new robots.
This was a historic shift and it displaced automotive dominance in the industrial robotics industry since 1961. As per the IFR, while the automotive production shutdown during the pandemic was to blame for this to an extent as production shutdowns led to delayed investments, between 2015 and 2020, industrial robot installations in the automotive industry had dropped by a compounded annual growth rate (CAGR) of 4% per year. On the flip side, the demand for consumer electronics boomed during the pandemic due to stay at home mandates and the shift to remote working. Coupled with the social distancing mandates in the manufacturing sector, it kicked started a historic shift.
Our Methodology
To make our list of cheap robotics stocks to buy, we started by ranking the holdings of the biggest robotics ETFs by their average analyst share price upside. This was chosen instead of the P/E ratio since several firms are unprofitable. Then, the stocks with the lowest P/E ratios were selected and they were further refined to only include those stocks with an average analyst rating of Buy or better.
For these stocks, we have also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A research facility with medical professionals surrounded by diagnostic equipment.
Illumina, Inc. (NASDAQ:ILMN)
Number of Hedge Fund Holders In Q1 2024: 48
Price Upside: 21%
Average Share Price Target: $145.84
Illumina, Inc. (NASDAQ:ILMN) is a sizeable medical diagnostics and research firm based in San Diego, California. It targets the demand for automation and robotics products in the healthcare industry through items such as DNA library preparation kits for gene sequencing and robot control software. While on its own these products provide Illumina, Inc. (NASDAQ:ILMN) with a limited competitive advantage, the firm has a rapidly growing market at its disposal due to its strong position in the gene sequencing industry where it commands more than fourth fifths of. the global gene sequencing industry. This dominant market share means that Illumina, Inc. (NASDAQ:ILMN) can rapidly learn from customer experiences of its automation products and maintain and grow its competitive edge in the industry. Additionally, its business model is built on pricey products that are sold for long term use, which means that Illumina, Inc. (NASDAQ:ILMN) also has the potential to earn recurring revenue.
Patient Capital Management mentioned Illumina, Inc. (NASDAQ:ILMN) in its Q2 2024 investor letter. Here is what the firm said:
“Illumina Inc. (ILMN) is a good example. We entered the name late last year as the company began to trade at a 5-yr low. The company is a leader in the genomic sequencing space but made an ill-advised acquisition of Grail, a blood- based multi-cancer early detection product, in 2021 for $8B dollars. Grail was an annual ~$600m drag on profitability hitting the financials at the same time that competition began to pick up and the overall demand environment began to weaken. Despite increased competition in the genome sequencing space, Illumina continues to be a leader with ~80% market share today. With the successful separation of Grail Inc. (GRAL) in June, Illumina has now returned to a pure-play sequencing company. As the company returns to historical profitability post Grail spin-off and as the demand environment normalizes post COVID, we believe you can buy a market leader in a secularly growing industry for less than a market multiple.”
Overall ILMN ranks 9th on our list of the cheap robotic stocks to buy. While we acknowledge the potential of ILMN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ILMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.