CREDIT SUISSE: These 7 Stocks Will Rise With The Machines

Factory automation

Photo: Wikimedia Commons

One of the major long term trends in the global economy will be increasing automation of industry.Credit Suisse is out with a detailed analysis of the near and long term implications of the ongoing switchover.

Interestingly, they think one of the principal drivers will be China. With a decreasing supply of low cost rural labour and an effort to push up wages, the country should see an increasing rate of automation.

Right now, their pace of robot adaptation is 8 per cent of Japan’s, meaning there’s a great deal of room to grow. 

In the report, Credit Suisse analysts pick their seven favourite stocks in the sector. They think the current macro environment offers an attractive entry point for the long term, and expect industry momentum to ramp up in coming quarters. 

Siemens AG

Market Cap: $83.7 billion

Ticker: NYSE: SI

P/E: 10.4x

Siemens is the world leader in factory automation, from which it derives 31 per cent of its profits. It has recently announced cost cutting measures and a $3 billion dollar share buyback, and trades at an attractive valuation.

Source: Credit Suisse

Rockwell Automation

Market Cap: $10 billion

Ticker: NYSE: ROK

P/E: 13.5x

Rockwell is a somewhat more cyclical pick than the other more self sufficient names on this list, however its valuation multiple is cheap, its discrete automation business is growing. and it is a possible acquisition target. Source: Credit Suisse

FANUC

Market Cap: $30.8 billion

Ticker: TYO: 6954 PINK: FANUY

P/E: 15.7x

FANUC has about a 20 per cent global share in the robot market, and is poised to benefit from increased adoption in China and Japan.

One prospect for significant growth would be increasing application of robots to machine tools. Credit Suisse estimates that if one third of new machine tools were outfitted with a single robot, market demand would double.

Source: Credit Suisse

Delta Electronics

Market Cap: $8.1 billion

Ticker: TPE: 2308

P/E: 16.2x

Industrial automation is 8 per cent of Delta's total revenue, but provides 20-25 per cent of operating profits.

CS believes that Delta is particularly well positioned to grow along with the Chinese market, due to a competitive cost structure and expanding product line. They see automation as a multi year growth driver for the company.

Source: Credit Suisse

Keyence

Market Cap: $15.5 billion

Ticker: TYO: 6861 PINK: KYCCF

P/E: 18.5x

Credit Suisse views Keyence as an extremely profitable and cash rich company, which is aggressively seeking new markets with a large sales and automation consulting team.

They are well poised to benefit from 'the silver cycle' in which Asia's ageing societies invest significantly in automation. They design a wide variety of sensor, safety, and imaging technology used in automation.

Source: Credit Suisse

Mitsubishi Electric

Market Cap: $17.9 billion

Ticker: TYO: 6503 PINK: MIELY

P/E: 9.1x

Factory automation provides 20-30 per cent of Mitsubishi Electric's operating profits. It is the market leader for a number of products, including the computers that control automated production and laser processing machines. Source: Credit Suisse

TECO

Market Cap: $1.2 billion

Ticker: TPE: 1504

P/E: 11.9x

With a 10 per cent market share, TECO is the third largest producer of mid and large range motors worldwide. It is using that expertise to expand its footprint in system automation, which provided 13 per cent in sales in 2011.

Source: Credit Suisse

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