The final quarter of 2019 is nearly upon us. As we reflect on an eventful decade, it is worth examining what sectors investors should be focusing on ahead of the 2020s.
Automation’s impacts on the job market are expected to be acutely felt by the middle of the next decade. Manual labour jobs will be hardest hit in the first wave, but automation will also impact high-skill workers in a variety of industries.
In finance we’ve already witnessed the proliferation of robo-advisor services. The use of high-frequency trading has exploded at top firms over the past decade.
Industrial automation is going to be our focus for investors today. A recent report from Allied Market Research projected that the global factory automation market will reach $368 billion by 2025.
This compares to a value of roughly $190 billion in 2017, which represents a CAGR of 8.8% from the period covering 2018 to 2025.
ATS Automation (TSX:ATA) is a Cambridge-based company that designs and builds factory automation systems. Shares have climbed 27% in 2019 as of close on September 18, and the stock has boasted average annual returns of 12% over the past decade. Last spring I’d recommended that investors jump on ATS Automation stock for the long haul.
The company released its first quarter fiscal 2020 results on August 14. Revenue rose 13% year-over-year to $339.2 million and EBITDA climbed to $47.2 million over $36.8 million in the prior year.
Order bookings increased 18% year-over-year to a record $423 million. ATS Automation achieved 9% organic growth in order bookings and 9% off the back of recent acquisitions.
Shares of ATS Automation fell 15% over the past three months at the time of writing. The stock boasts a forward P/E ratio of 17 and a favourable price-to-book of 2.1.
ATS Automation has climbed out of technically oversold territory, but I still like the stock at its current price as a long-term add.
Other investors may favour a broad-based approach in this sector, especially with headwinds building for the global economy. The Horizons Robotics and Automation ETF (TSX: RBOT) launched in November 2017.
This ETF seeks to replicate the performance of the Global Robotics & Artificial Intelligence Thematic Index. Shares of the ETF have climbed 19% in 2019 so far.
The fund is most heavily weighted in the industrial sector, at approximately 43.8%. The Information Technology and Health Care sectors both make up over half of the fund at a weighting of 37% and 13%, respectively. Japan and the United States are the two countries with the largest exposure, totalling nearly 80% of the fund.
Nvidia is the largest holding in the fund at 7.78% at writing. Its AI computing powers industrial robots that lead to increased efficiency at smart factories. The company also boasts a footprint in the fast-growing self-driving car industry.
Keyence is another top holding. The Osaka-based company develops and manufactures automation sensors, vision systems, barcode readers, and other products that have broad use across various sectors.
