Automation on a Tear

From Harry’s article above, “Germany is redesigning assembly lines and work environments to minimize bending and lifting.”

A fascinating interplay between demographics and modern business practices, don’t you think?

Yet, Germany is redesigning assembly lines another way as well. That is, with automation.

This is a significant global trend. The combination of declining demographics and aging workforce populations stands to put a squeeze on productivity. And for many operations, ultra-thin profit margins can’t absorb the added costs of poor productivity.

That’s why industrial manufacturers turn to automation, to both save money and increase production. It’s a real win-win for producers (although not for job seekers).

While GDP growth around the world has waned in recent years, the industrial automation market is growing rapidly. Last year the market grew by 9.5% and was worth $160 billion. That figure is expected to easily exceed $200 billion by 2015.

So how do you profit from this trend?

There are a few ways.

For one, Germany has its own automation expert in Siemens (NYSE: SI). But the company’s products and services are diverse, so while investors can gain exposure to the automation trend through Siemens, it’s no pure play.

The same can be said for ABB Ltd. (NYSE: ABB), Switzerland’s industrial giant. ABB is a clear market-leader in the industrial automation space. In fact, this is one reason I recommended ABB to Boom & Bust subscribers last November. But while it too is not focused solely in this space, it’s closer to the mark.

For a pure play on the rapid growth of industrial automation, I recently recommended Rockwell Automation (NYSE: ROK) to the exclusive group of Cycle 9 Alert subscribers.

Here’s a chart comparing the price action of both ABB and Rockwell Automation.

See larger image

As you can see, ABB’s share price is being held back, likely because of the negative pall over everything connected to the euro zone. It seems unable to trade higher than its 2008 high. This sluggishness is one reason I recommended exiting ABB in late June, locking in a gain of 13% for the Boom & Bust model portfolio.

Rockwell, on the other hand, is on a tear. It first eclipsed its pre-crash high in early 2011. Just recently, it broke that high too. Rockwell is now trading at an all-time high, over $101 a share, having gained a market-beating 21% so far in 2013.

As such, the Cycle 9 Alert model portfolio is sitting on an open gain of about 100% as of today.

Both stocks are good bets on the rise of the machines on the industrial assembly line.

ABB looks to be a great long-term bet, especially if you’re a value investor looking to get in at cheap prices (and willing to stomach the euro zone volatility).

ROK is more of a momentum play, so if you’re not into the stock already, I’d recommend waiting for a pullback before hopping in.

Either way, the industrial automation trend is well underway and growing at above-average rates. I have my eye on this space and will share opportunities as they arise.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.