Automation stocks can be a tricky subject fundamentally speaking. With advances in artificial intelligence combined with enhanced connectivity – as in the Internet of Things or IoT – machines can end up taking over human jobs. It’s not an insignificant dilemma. I mean, historically, the underlying disparity sparked a massive ideological divide between socialism and free-market capitalism.
However, the concept underlying automation stocks doesn’t have to be all doom and gloom. Rather, by accepting that technology constantly moves forward, we can embrace this new era of innovation. Yes, certain sectors and jobs face disruption risks, there’s no doubt about it. Nevertheless, over time, smart machines and algorithms should help accelerate productivity.
For investors, the situation is far more straightforward. Ultimately, you care about the bottom line. With the tech ecosystem crafting new methodologies and protocols, a renaissance of productivity awaits us. Your job is to get in before the wave hits. With that, let’s go the hands-free approach with automation stocks to buy.
Honeywell (HON)
Honeywell (NASDAQ:HON) represents an industrial conglomerate, specializing in myriad applied-science specialties. But regarding automation stocks, it arguably plays the biggest role in the industrial automation subsector. According to Fortune Business Insights, the global arena can expand at a compound annual growth rate (CAGR) of 9.8% to 2029. Here’s why that’s important.
Covering experts believe that in fiscal 2024, Honeywell may reach $38.66 billion on the top line, translating to year-over-year growth of 5.5%. In fiscal 2025, sales could hit $41.05 billion, implying 6.2% growth. Granted, the CAGR here is conspicuously below that of the expected expansion rate of the industrial automation category.
Nevertheless, HON stock again represents an investment into a conglomerate. It covers myriad sectors, which means it’s not going to be a pure-play idea on automation stocks. However, this wide breadth also gives you an advantage in the form of a predictable business. Predictable businesses typically pay dividends.
In this case, Honeywell offers a forward yield of 2.07% with a sustainably low payout ratio of 48.9%. It’s not exciting but don’t overlook it.
Rockwell Automation (ROK)
Rockwell Automation (NYSE:ROK) falls more in line with a direct play on industrial automation stocks. Admittedly, the company represents a higher-risk profile than Honeywell. Currently, analysts peg ROK stock as a consensus hold. Further, the average price target comes in at only $276.67, implying 9% upside. That said, the most optimistic target calls for $316 per share.
Part of the hesitation in Rockwell centers on poor projections for its fiscal 2024 top line. Sales might land at only $8.6 billion, which would be 5.1% down from the prior year. However, it should be noted that the high-side revenue target calls for $9.33 billion. What’s more, Rockwell’s first quarter of 2024 earnings was strong: an earnings surprise of 15.7% while beating the consensus sales forecast.
That tells me that Rockwell may be due for a stronger-than-expected year in fiscal 2024. Further, analysts either way expect a recovery in fiscal 2025, with sales rising to $9.08 billion. Here, the blue-sky target calls for $9.79 billion.
Right now, ROK stock trades for 3.27X trailing-year revenue. That’s much lower than the 4.57X multiple that we saw a year ago.
Stryker (SYK)
Stryker (NYSE:SYK) offers significant relevancies for the healthcare segment of automation stocks. According to Grand View Research, the medical automation market reached a valuation of $44.44 billion in 2022. Between 2023 to 2030, the sector could expand at a CAGR of 9.04%. At the forecast culmination point, the industry could be worth $88.11 billion.
When it comes to projections, Stryker is right there. For fiscal 2024, analysts anticipate that earnings per share will hit $11.96, up 12.8% from the prior year’s print of $10.60. On the top line, sales may reach $22.31 billion, That would be up 8.8%. Further, the high-side target calls for sales of $22.43 billion, up 9.41%. Again, it’s riding the expectation for the market.
It’s also possible that even the most optimistic analysts could be undercutting the expected potential of Stryker. Between Q2 2023 and Q1 2024, the company posted an average EPS of $2.74. This performance translated to an earnings surprise of 5.03%. While not exciting per say, the enterprise is consistently beating expectations.
While you’re holding SYK, you’re also getting a forward yield of just under 1%. It’s one of the automation stocks to consider.
Intuitive Surgical (ISRG)
Intuitive Surgical (NASDAQ:ISRG) is one of the strongest and most popular ideas among medial automation stocks. The chart tells the story, with ISRG stock gaining almost 29% of equity value since the January opener. Of course, whenever you’re dealing with enterprises that are swinging higher, some concerns exist about holding the bag.
Here’s the thing – do you trust the analysts? At the moment, they’re rating ISRG a consensus strong buy. The average price target of $432.73 isn’t good at all but the high side of $500 gets one thinking. But the most important point for me is the forward projection. In fiscal 2024, experts believe that Intuitive can generate $8.02 billion on the top line. That’s a 12.6% growth rate from last year.
Let’s move onto fiscal 2025. Here, the experts are calling for sales of $9.29 billion. That would be up almost 16% from projected 2024 sales. Of course, the issue with ISRG is that it runs a hot revenue multiple of 20.86X.
But when you’re handily beating the sector? I think it’s one of the automation stocks to consider.
Alphabet (GOOG, GOOGL)
Technology juggernaut Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is a jack of all trades and a master of most of them. However, for the purposes of discussing automation stocks, it offers significant relevance for the mobility sector. Of course, I’m referring to Waymo but it’s more than just that. With the company being a data-mining powerhouse, it can go far in the self-driving space.
According to Fortune Business Insights, the autonomous vehicle market size may expand from $1.92 trillion in 2023 to $13.63 trillion by 2030. If so, that would represent a CAGR of 32.3%. Now, you’re probably not going to see a growth rate like that from Alphabet at this stage of the game. Still, let’s look at some numbers.
In fiscal 2024, experts believe that Alphabet will post EPS of $7.57, up 30.5% from the prior year. That’s massive. On the top line, revenue could clock in at $346.6 billion, up 12.8% from 2023’s tally of $307.39 billion. That’s impressive given that Alphabet is much more mature.
GOOGL stock trades at a hot premium of 7.03X trailing-year revenue. Still, it’s well worth it given the expansion of the top and bottom lines.
Mobileye (MBLY)
For those that want to take a higher-risk wager on mobility-related automation stocks, Mobileye (NASDAQ:MBLY) offers a compelling take. According to MarketsandMarkets, the burgeoning Mobility as a Service sector could reach a valuation of $40.1 billion by 2030. If so, that would imply a CAGR of 32.2%. I mention this because even the mobility subsectors are signaling CAGRs of 30%-plus.
Down the line, this could be a huge opportunity for stakeholders of MBLY stock. Let’s get the bad news out of the way first. Shares have been volatile this year, down nearly 32% year-to-date. Some of the bearish sentiment may be tied to fiscal 2024 sales projections. The consensus target calls for a print of $1.89 billion. That implies a 9.1% decrease from the prior year – not good.
Okay, here’s the good news. By the end of fiscal 2025, sales could soar to $2.62 billion. That would imply a 38.6% growth rate (admittedly from the lowered expectation of fiscal 2024). Further, the blue-sky target calls for $2.76 billion.
In terms of risk reward, MBLY stock trades at 12.23X trailing-year sales. That’s well below the year-ago quarter’s print of 15.94X. It’s something to think about.
iRobot (IRBT)
Perhaps the riskiest idea on this list of automation stocks to buy, iRobot (NASDAQ:IRBT) falls under the consumer tech segment of the hands-free ecosystem. What’s more, the sector appears to be enticing. According to Grand View Research, the global robotic vacuum cleaner market size reached a valuation of $4.48 billion in 2021. Between 2022 to 2030, the sector could expand at a CAGR of 23.4%, resulting in industry sales of $29.82 billion.
That’s the good news. However, the not-so-pleasant side of the coin is iRobot’s projected sales for fiscal 2024. Covering experts anticipate that the top line will slip to $836.64 million, down 6.1% from last year’s haul of $890.58 million. Sure, the most optimistic target calls for $839.82 million but that’s not much better. Not only that, fiscal 2025 sales is only projected to hit $848.31 million. So, the trend isn’t great.
Unsurprisingly, analysts are pensive about IRBT, rating shares a consensus hold. However, the most recent price target calls for $14, which implies 52% upside potential. It’s not impossible for iRobot to get there, considering the brand awareness and the projected growth of the sector.
Still, I’d save IRBT as a speculation only type of play.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
