Are you ready for a new industrial revolution? According to RBC Capital, artificial intelligence (AI), autonomous transportation and cloud technology could completely transform the industrial marketplace within the next 5-10 years. As a result, the firm has just put together a report of some of the most promising industrial stocks taking advantage of these critical trends. These are the stocks that RBC believes will be leading the way come 2025.
“Our call to action is this: with the pace of change accelerating, Industrials stakeholders must place increased focus beyond the next few quarters and into the years ahead” wrote the firm on September 5. With this in mind, let’s leave behind the current market turmoil and take a closer look at a few of the top industrial stock picks highlighted by RBC Capital’s latest 2025 report:
1. General Motors Company (GM)
In 2016, GM began preparing for the future of mobility by acquiring Cruise Automation, a self- driving vehicle startup. At the time, Cruise was developing hardware and software that would allow a vehicle to drive autonomously on the highway, and had been working on technology that would allow a vehicle to be fully autonomous.
While Cruise is the company’s highest profile initiative, GM has looked to AI for other areas of their business as well. For instance, with IBM (IBM) they rolled out AI to their OnStar program, which gives them the capability of identifying information about the car and its surroundings. As an example, when fuel is low, the AI can route the vehicle to a nearby station and signal to the pump to activate and pay for the fuel.
What’s more, RBC Capital believes the robo-taxi opportunity will grow exponentially through 2050. “GM is an automotive leader in the robo-taxi opportunity. This opportunity allows them to shift from selling units to miles. Selling miles could be a larger TAM [total addressable market] with higher profit, and reduced cyclicality. These factors could lead to a re-rating” cheers RBC Capital analyst Joseph Spak. In fact, this five-star analyst currently has a buy rating on GM with a $52 price target (37% upside potential).
The Street also has a bullish Strong Buy consensus on GM right now:
2. Albemarle Corp (ALB)
If you are looking to play the electric vehicle trend but from a slightly different angle, then Albemarle is a great stock to consider. This chemicals giant is the #1 global producer of lithium which will be used heavily in electric vehicle (EV) batteries for at least the next decade.
RBC Capital’s Arun Viswanathan singles out Albemarle as one of the companies best positioning and reinvesting to win in 2025. He has a buy rating on the stock with a price target of $83 (35% upside potential).
Demand for lithium-ion batteries is growing at an exciting rate, says Viswanathan, driven by the global demand for electric vehicles, mobile devices and grid storage. “We believe lithium batteries will play a key role in advancing EVs, autonomous driving and reducing air pollution” he tells investors. And as the EV industry evolves, battery requirements will also need to evolve to address great safety needs and range specifications.
Auto OEMs (original equipment manufacturers), suppliers and technology companies are going to need to collaborate in order to make autonomous vehicles a reality. These ambitious projects require the work of the collective minds and expertise to be completed says Viswanathan.
And that’s where Albemarle comes in: “This is why we like companies such as Albemarle, which embraces the opportunity to build mutually beneficial relationships with business partners and local communities. As the next generation of autonomous driving and AI capabilities are developed, we would expect the chemical companies such as ALB and the coatings companies to have a higher degree of collaboration and exchange of ideas” the analyst writes. The stock has a Moderate Buy Street consensus, based on the last three-months of ratings.
3. Xylem Inc (XYL)
Smart water networks represent the biggest growth opportunity within the global water sector, says RBC Capital. Global water infrastructure is currently under strain from aging equipment, and there’s an urgent need for investment and improved management.
The solution to this dilemma is known as smart water networks. Using connected devices, the Internet of Things and IT, municipalities can improve monitoring and diagnostics, optimize investments and ensure better infrastructure care.
“No water company has advanced smart water networks and solutions more capably or aggressively than Xylem, in our view” comments RBC’s Deane Dray. This top-rated analyst recently reiterated his XYL buy rating with an $83 price target (10% upside potential).
Indeed, Xylem has stated that nearly 50% of its revenues are now either smart or smart-enabled, thanks to its landmark acquisition of Sensus and disruptive Advanced Infrastructure Analytics (AIA) platform. Looking ahead management expects organic revenue growth for AIA to outpace the rest of its portfolio by at least 2x over the long-term, implying a double-digit pace of growth.
For instance, its new specialized buoys in the water off of JFK and LGA airports are equipped with water test equipment to detect jet fuel spills and de- icing chemicals. Another example: A private utility in Singapore was experiencing leaks and breaks and was unable to determine the cause. Using Xylem’s high sample rate pressure sensors and analytics, the utility was able to discover and fix the problem, generating significant savings. Overall, the Street has a Moderate Buy consensus on XYL.
4. Aptiv PLC (APTV)
Next comes Aptiv- a global auto parts company based in Ireland. “We continue to believe Aptiv is a leader and key enabler of autonomous driving” enthuses RBC's Joseph Spak.
The company snapped up self-driving specialist Ottomatika (a Carnegie Mellon spin-off and winner of the 2007 DARPA Urban Challenge) in 2015. In 2017, GM also splashed out on nuTonomy, a leading developer of autonomous driving software solutions- further strengthening its position in the global autonomous mobility market.
While the autonomous mobility on-demand opportunity is still in its early days, Aptiv expects initial driverless tests to occur by the end of 2020, with increased scale as hardware becomes automotive grade in 2025. Management has indicated they believe Aptiv’s autonomous driving revenue will be $500mm by 2025. At scale, the company expects 70%-80% of its autonomous mobility revenue to come from recurring revenue streams.
As a result, Spak concludes: “The company has positioned the portfolio to be a key supplier for the signal and power architecture needed in vehicles of the future, autonomous driving and connectivity. Aptiv is also adopting new business models and is one of the first companies to show real- world monetization of their autonomous vehicle investment.”
In a July 31 report aptly titled ‘The Cream Rises to the Top’ the analyst reiterated his buy rating on Aptiv while ramping up the price target from $88 to $97 (15% upside potential). Analysts rate the stock Moderate Buy, according to the Street consensus.
5. Deere & Company (DE)
Recent UN estimates indicate one in nine people experienced chronic hunger in 2018 with the total global population continuing to grow. To help meet rising food requirements while coping with limited natural resources, the firm believes smart farming will become increasingly important.
“We expect the trend toward “smart farming” -- including AI/machine learning -- to accelerate as farmers search for ways to maximize productivity/yield, improve crop quality, and reduce costs/improve machine uptime in the face of relatively low commodity prices and stressed natural resources (land/water)” writes the firm’s Seth Weber. This can include everything from using drones to spray crops, to generating crop insights from advanced data analysis.
He continues: “We see Deere as well positioned for this trend.” Indeed, Weber currently has a buy rating on DE with a $175 price target (15% upside potential).
In particular, the analyst expects that farming machinery, like cars, will become increasingly autonomous. This should reduce the need for farm workers, while improving productivity. So far GPS guidance and assisted steering have been widely available in tractors, but self-driving systems have remained elusive. As Weber notes, John Deere built its first autonomous navigation system in the 1990s with NASA, and much more recently unveiled an autonomous tractor at the CES 2019 conference.
However, regulatory hurdles and gaining comfort with unmanned equipment are potential challenges- so watch this space. Overall the Street has a cautiously optimistic take on DE right now: