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10 Best Automation Stocks For 2021

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·12 min read
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In this article we will take a look at the 10 best automation stocks for 2021. You can skip our detailed analysis of the automation technology’s outlook for 2021 and go directly to 5 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.

10 Best Automation Stocks For 2021
10 Best Automation Stocks For 2021

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.”

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Disclosure: None. 10 Best Automation Stocks For 2021 is originally published on Insider Monkey.