One of the Best Stocks to Ride the “4IR” Trend
Today’s stock is one of the gems picked up through our favorite “picks and shovels” stock-picking strategy. My regular readers know that I like this strategy for the simple reason that investors can enhance their profits multiple times when choosing a business that supplies innovative products to a number of industries that are participating in a hot emerging trend.
I am talking about Cognex Corporation (NASDAQ:CGNX). The company makes “machine vision” products that are widely deployed in the automation of factories and warehouses. CGNX stock is one of my top stocks for the following reasons.
Cognex Corporation is one of the best investment plays in the Fourth Industrial Revolution (4IR) that is currently underway. The 4IR is characterized by a fusion of technologies that blur the borders between physical and digital worlds. Manufacturing is undergoing a tremendous transformation with the introduction of robotics and automation, and Cognex is at the forefront of this change where physical production is integrated with digital technologies to enhance productivity.
As per research by Tractica LLC, enterprise robots, consumer robots, unmanned aerial vehicles, and autonomous vehicles will drive robotics market growth to $226.0 billion worldwide by 2021. Riding on the growth in these categories, Tractica forecasts that the global robotics industry will grow from $34.1 billion in 2016 to $226.2 billion by 2021, registering a compound annual growth rate of 46%. (Source: “The Global Robotics Industry is at a Critical Turning Point as Non-Industrial Robots Overtake Industrial Robots in Market Size for the First Time in 2016,” Tractica LLC, August 30, 2016.)
As manufacturers invest more and more in automating factories and warehouses, the demand for machine vision systems will keep on rising, thereby pushing up the price of Cognex stock. Machine vision technology helps in tasks like scanning barcodes to sort goods automatically, or inspecting goods for defects.
Cognex specializes in machine vision technologies, which means that it makes sophisticated cameras, lenses, and vision software that help automate production and improve the quality of products in a number of industries. A few of the industries where the company’s machine vision products are used include automotive, semiconductor, electronics, medical, and shipping. This gives a clear idea as to the reach and depth of Cognex Corporation’s business.
And that isn’t all. Cognex is consistently building on its strengths, and is well positioned to profit from this boom. Last month, the company acquired ViDi Systems SA, the maker of deep learning software for industrial machine vision. Although there would be no material impact of the acquisition for the next couple of years, this builds up the company’s competitive edge in vision software that we want to see in a few years.
CGNX stock has been consistently going up, and now, more than ever, the macro environment seems to be perfectly set for a higher growth trajectory.
The following chart shows how CGNX stock has performed over the past five years. This stock has gone up by over 380% during the past five years, and almost 120% over the last year. The best part is that the trend is unlikely to stop in the coming years, as the pace of automation continues to increase.
Chart courtesy of StockCharts.com
The 4IR Powers Cognex Stock
CGNX stock is a strong play in the emerging 4IR, which is dominated by increased automation and robotics. The company’s edge also lies in its string of patents, which proves that it has innovative capabilities.
As robots become an integral part of manufacturing in the coming years, this should translate into more gains for Cognex stock. This is because the company’s machine vision technology is widely recognized as an important component of automated production and quality assurance.
This is evident from the impressive growth that the company has been posting.
On the earnings front, Cognex has been consistently posting upbeat earnings. Last week, the company posted its new first-quarter record for revenue, net income, and earnings. Revenue, at about $135.0 million, grew 40% from Q1 2016, and gross margin was phenomenal at 79% for both Q1 2017 and Q4 2016. The icing on the cake is that Cognex Corporation is a debt-free company with loads of cash!
In a nutshell, Cognex products are the brains behind automated factories, as well as distribution centers run by robots. This makes Cognex one of the best “picks and shovels” play in the Fourth Industrial Revolution. As manufacturing will increasingly deploy robots to achieve higher efficiencies and returns in the future, CGNX stock could turn out to be a “multi-bagger” in the years to come. Any decline in the stock price, therefore, could be a good opportunity for investors.