Robots are the only sector of the industrial economy to succeed

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Industrial production peaked in late 2017 and industrial inventories remained stable over the past year. The US-China trade war, combined with the slowdown in global economic activity, is making industrial investors sweat. But one sector of the industrial economy continues to develop as gangbusters: robots.

Robotic automation enters new processes in different sectors, such as logistics and health care. The outlook for robots therefore remains optimistic, even in times of economic slowdown. This is good news for
Teradyne

(ticker: TER) as well as a handful of companies manufacturing robotic automation equipment.

The Robotic Industries Association, or RIA, recently released its industrial growth figures for the second quarter, and these numbers are impressive.

"North American companies have ordered 8,572 industrial robots, worth $ 446 million," reads the August 20 RIA press release. "This represents a growth of 19.2% in the number of industrial robots ordered and an increase of 0.6% in dollars compared to the same period in 2018."

Commands and values ​​diverge as smaller robots, including collaborative robots called co-robots designed to work safely alongside humans, grow faster than larger and more expensive robot models. Huge robots often enter the automotive industry: to weld and paint vehicle bodies, as well as to place heavy loads on assembly lines. The global automotive sector, however, is struggling. US, Chinese and European light vehicle sales are down, forcing automakers to tighten their purse strings and delay capital spending.

Nevertheless, for the first half of 2019, the robotics market grew by 7.2%, according to RIA. "The market is growing bigger and bigger," says Sebastien Schmitt, Head of Robotics Division at Stäubli North America Barron. "We are busy, our business is above our expectations. [2019] budget."

Stäubli is a Swiss manufacturer of high precision machines, including medium sized industrial robots, based in Switzerland. The company claims to have the fastest sorting robot in the world, capable of 100 "picks" per minute.

Stäubli is not so exposed to the slowdown in the automotive industry, partly because it manufactures smaller robots and sees many possibilities for new robotic applications. "Food [packaging and production] is not very automated. We have sterile robots to clean the facilities and robots that can work in humid conditions, "said Roger Varin, CEO of Stäubli North America. Barron. "Our robots can wash the salad, which was impossible in the past."

Stäubli also recently completed an acquisition in the space reserved for autonomous guided vehicles (AGV). Investors can call back
Amazon.com

(symbol: AMZN) bought Kiva Systems, another AGV company, in 2012 for $ 775 million. Today, Kiva orange robots are moving inventory in all Amazon distribution centers.

"Our AGV has a capacity of 20 tons," says Varin. "We try to be different by transferring a higher payload around the manufacturing plants."

The growth of robots is good news for the industrial sector, but its business sector is still underdeveloped. Orders of about $ 500 million in North America for the second quarter of 2019, for example, represent much less than 1% of the total capital expenditure of global industrial companies over the same period. This is only an approximation, but this indicates that the trend towards increased automation still has a long way to go.

Barron recently wrote positively about the industrial conglomerate
ABB

(ABB) and Teradyne semiconductor test equipment manufacturer. The growth of robotic automation is part of both stock-pick stories. ABB manufactures a range of robots with other industrial automation products. Teradyne started in the co-bot sector with the acquisition of Universal Robots in 2015.

Since the appearance of our positive calls, the ABB share has lost 1.7%, less than the 5.2% gain
Dow Jones Industrial Average
and the 6.2% gain in
SPDR ETF industrial selection of the sector
(XLI) over the same duration.

Teradyne is much better off: up 32.4%, more than 30 percentage points better than comparable market returns for the same period.

The weakness of the car market has weighed on the morale of ABB's investors. It manufactures the largest versions of industrial robots, as well as smaller models such as the company's Yumi collaborative robot. Again, Barron is positive about the stock and all the opportunities offered by robotic automation.

Write to Al Root at [email protected]