2 stocks for the rise of the robots
Robotics is a fast-growing area of tech, creating opportunities in medical, logistics and life sciences sectors and much more.
Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Denise Molina. She is an equity analyst with Morningstar. Hello.
Denise Molina: Good morning.
Black: So, Denise, obviously, tech is a huge theme for investors at the moment. And a trend within that is the robotics sector, which is something you've been looking at. Why is this such an exciting area for investors?
Molina: Robotics is just beginning to expand. It's been around since the 60s, but I bet you that most people haven't seen a robot in the last like 10 days, one year, ever, especially in their workplace. And that's because most of the robots are used in automotive and consumer electronic plants. You don't really see them in other sectors. But that's all changing now. So, we've seen like basically an expansion of robots into life sciences, food and bev, warehouses, and this is coming from the fact that robots have become more flexible in how you can program them and have also become more affordable.
Black: So, what is the opportunity for investors here? What are the tailwinds driving the sector?
Molina: There are two really interesting stocks in Europe that we look at in terms of robotics exposure. One is ABB (ABBN), which is the number two robotics manufacturer globally and the other one is KION Group (KGX), which supplies warehouse automation equipment and within that robotics as well.
Black: And are there any risks, because there usually are when we think about anything tech or theme related?
Molina: That's exactly right. I mean, the evolving space of any technology means you have to spend to develop new products and to keep up with the competition. So, both these companies have R&D that they need to keep investing in, in order to have the latest applications. They also do a bit of bolt-on acquisitions. So, the risk for investors is that these companies are able to allocate capital at a level of return that's equal or better to what they have now and it could be that this market gets really hot in that the opportunities for acquisitions get too expensive or maybe that some of their R&D doesn't pan out.
Black: So, you mentioned two stocks there. What is it you like about ABB and KION?
Molina: I think KION and ABB both have in front of them an expanding addressable market. They have a long runway of growth because robotics adoption is so early stage and they are both leaders in their markets. So, ABB is the number two robotics supplier globally, but it's number one in China, the largest robotics market in the world. And similarly, KION Group is the largest warehouse automation supplier in the world. And both of those businesses are really sticky. They've got loyal customer bases once they get their equipment in and they have a long tail of recurring revenue from service from aftermarket.
Black: So, I think some of the biggest concerns people have when we talk about robotics is, they are going to steal my job, or they are going to attack. Are these legitimate concerns, or is this just the stuff of movies?
Molina: That's a common question. And I think there is a little bit of truth to that. But there are two sides to this story. One is that robotics came into use in the automotive sector to take away some of those dangerous jobs. The heavy lifting you can imagine within the automotive manufacturing process, there's a lot of that. There's also a lot of sectors that use robotics to do jobs that involve exposure to chemicals, or heat. So, there is a reduction in worker risk and health and safety risk that robotics has brought into those sectors. But on the flip side, it does mean that the jobs that robots take over will involve people trying to adapt to new skills, and that's probably true of a lot of technology being adopted within the economy.
Black: Denise, thank you so much for your time. For Morningstar, I'm Holly Black.