Automation and artificial intelligence could become both the greatest economic boons and the greatest economic challenges of the next few decades. Patrik Schöwitz, a global strategist of multi-asset solutions for J.P. Morgan Asset Management, forecasts that technology will boost productivity so significantly, U.S. GDP could nearly double on those gains alone. But a creeping fear has begun to take hold that those same innovations will eventually eliminate scores of human jobs faster than other forces can create new ones. ”
Of course, there’s an easy way to hedge the risk of becoming unemployed in the meantime: “Just own the damn robots,” Joshua Brown, CEO of Ritholtz Wealth Management, wrote recently. “What price is too high to pay for a company’s stock if the company spends every waking minute trying to replace you?” Brown’s ironic take aside, investors are seeing promising opportunities in the industrial sector that are driven by robotics advances. One innovator whose stock is priced particularly reasonably is Honeywell (HON), whose A.I.-powered machines are becoming ubiquitous in e-commerce warehouses, airplanes, and households, and which trades at less than 20 times 2018 earnings. It’s already a leader in industrial Internet-of-things devices, which are poised to drive what some see as the next revolution in manufacturing. Such products “will be the hallmark of introducing the Internet and digitization into the factory,” says Larry Puglia, manager of the T. Rowe Price Blue Chip Growth Fund.
Puglia’s portfolio also features a couple of promising smaller heavy-equipment makers: Florida-based Roper Technologies (ROP), which specializes in industrial robots for power plants and also makes medical imaging robotics; and Washington State–based Fortive (FTV), which makes automation tech used in everything from Mars explorers to artificial hearts. With expected 2017 revenues of $4.7 billion and $6.6 billion, respectively, neither Roper nor Fortive is a household name, but both are poised to capitalize as more companies automate their factories.
Other companies are using robotics to cut their own costs. Once considered largely an aerospace and defense manufacturer, Boeing (BA) is now unquestionably a tech company in its own right, says Ian Mortimer, comanager of the top-performing Guinness Atkinson Global Innovators Fund. The company is generating fat returns on the nearly $3.5 billion it has invested annually in R&D. The robotics it has installed in its factories have helped it crank out its 737 airplanes about 60% faster than it did five years ago. Such progress has propelled Boeing’s stock to return 77% so far this year, but Mortimer thinks it has room to run. Mortimer also owns Japanese robotics company Fanuc (FANUY), a big supplier to Chinese factories. Those factories currently have only three robots per thousand workers, says Katie Koch, global head of client portfolio management and business strategy for fundamental equity at Goldman Sachs Asset Management. That means there’s a huge untapped market there: “That’s where Japan was 30 years ago,” Koch adds.