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  • Bank of America is naming 11 global winners from a giant shift towards industrial automation.
  • The firm’s analysts say the shift of manufacturing away from China could trigger $1 trillion in spending, and more than $100 billion of that could be spent on industrial software.
  • Their biggest winners include a mix of software companies and older conglomerates that are successfully adapting to technological trends.
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Bank of America says $1 trillion might be up for grabs thanks to the trade war and rapid changes in technology, and it’s giving investors a heads up about some of the biggest winners.

One of the most important trends caught up in that seismic shift is industrial automation, the reinvention of factories thanks to the rapid growth in fields like e-commerce and artificial intelligence. Bank of America’s analysts say that will determine where a big chunk of the trillion dollars is spent.

“The well-publicized tensions between the US and China, compounded by COVID, are driving a re-think in terms of global supply chains with localization and reshoring the critical drivers,” they wrote in a recent note. “This could yield incremental industrial automation spending of >US$110 billion, with >US$140 billion in related and subsequent service business.”

A group of the bank’s analysts explains that software is also becoming a bigger profit center as companies that sell more are more profitable. The pace of innovation keeps speeding up as well.

“We have already passed the point where industrials spend more money on software than hardware,” wrote Andrew Obin, Alexander Virgo, John King, and Kenjin Hotta.

The group says the 11 global companies listed below are going to be some of the biggest beneficiaries of that trend over the next few years. Their top picks are a blend of pure-play industrial software companies and more familiar conglomerates that have figured out how to make these trends work for them.

Broadly, the companies are benefiting from trends like a supply-chain shift away from China, the “smart warehouse” requirements connected to e-commerce growth, evolving industrial software, the growing necessity of Internet of Things capabilities, and the benefits of new developments in robotics.

The companies all have “Buy” ratings from BofA analysts, and they’re ranked from lowest to highest based their upside, as calculated from the firm’s current price targets.

“We believe these companies all offer investors superior growth dynamics as a result of their exposure or positioning within industrial software markets and Industrial Internet of Things themes,” say the bank’s analysts.

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11. Aveva Group

Aveva Group




Markets Insider



Ticker: LON:AVV

Country: United Kingdom

Price target: 48.50 GBP

Upside to target: 1.2%

Thesis: “We believe there is a further upside to consensus estimates, fueled by end market growth, strong execution and significant synergies with SES. … In addition, the OSIsoft acquisition is a major catalyst for the stock, delivering faster growth for the company.”

Source: Bank of America

10. Kion Group

Kion Gropu




Markets Insider



Ticker: KGX.DE

Country: Germany

Price target: 80 EUR

Upside to target: 10.2%

Thesis: “We believe KION will continue to show positive results as they did in Q2… E-commerce markets were expected to grow 14% CAGR to 2027 before COVID; we think COVID accelerates this growth. KION, as the market leader, should benefit strongly from this trend.”

Source: Bank of America

9. Fanuc

Fanuc




Markets Insider



Ticker: JP: 6954

Country: Japan

Price target: 22,500 JPY

Upside to target: 12.1%

Thesis: “We expect Fanuc’s earnings will bottom in the near term and see potential improvements into 2H FY3/21 and FY3/22. … We believe the COVID-19 outbreak will accelerate shifting of supply chains and boost factory automation demand, and Fanuc’s robotics business is likely to be a key beneficiary of this trend.”

Source: Bank of America

8. Altas Copco

Atlas Copco




Marketwatch



Ticker: ATCOA.SE

Country: Sweden

Price target: SEK475

Upside to target: 13.3%

Thesis: “Atlas Copco is one of the higher ‘quality’ stocks in EU capital goods space driven by its highly resilient business model and solid cash flow generation even during tough operating environment (such as during COVID-19).”

Source: Bank of America

7. Dassault Systèmes

Dassault




Markets Insider



Ticker: DSY:EN

Country: France

Price target: 180 EUR

Upside to target: 13.9%

Thesis: “Its pipeline has been firming up in Q2, driven by improvements in the automotive business. Medidata has reported a ‘strong’ bookings growth …We see the November analyst day as a potential catalyst and generally believe the company’s recovery – aided by Medidata – could be quicker than expectations.”

Source: Bank of America

6. Hexagon

Hexagon




Markets Insider



Ticker: HEX.SE

Country: Sweden

Price target: SEK750

Upside to target: 16.2%

Thesis: “The company is positioned to benefit from China’s recovery and industrial automation demand thanks to its exposure to the industrial internet business. …  [T]he market continues to undervaluing management capacity in achieving even the bottom end of its five-year plan.”

Source: Bank of America

5. ABB Ltd.

ABB




Markets Insider



Ticker: ABBN.SW

Country: Switzerland

Price target: 27 CHF

Upside to target: 16.6%

Thesis: “ABB is a global leader in key automation segments for process, hybrid and discrete industries. … As a portfolio we believe ABB’s capabilities are underappreciated by the financial markets, but the breadth of the divisions and lack of transparency as to the businesses within [industrial automation] particularly has made comparison and analysis difficult in the past.”

Source: Bank of America

4. Rockwell Automation

Rockwell




Markets Insider



Ticker: ROK

Country: USA

Price target: $260

Upside to target: 20.6%

Thesis: “We argue the coronavirus pandemic has accelerated the need for US companies to diversify and localize supply chain. The pandemic adds on other trends pushing firms to localize supply chains…  Rockwell has a 7-8% share of the global industrial automation market, but a far greater share in the US.”

Source: Bank of America

3. PTC

PTC




Markets Insider



Ticker: PTC

Country: USA

Price target: $100

Upside to target: 22.4%

Thesis: “[A] beneficiary of the emerging theme of US manufacturing re-shoring. Additionally, the need for increased remote monitoring and training capabilities due to COVID-19 are revenue tailwinds. Strong secular growth outlook in Industrial [Internet of Things] and Augmented Reality should drive double digit earnings growth over the next 5 years.”

Source: Bank of America

2. Emerson

Emerson




Markets Insider



Ticker: EMR

Country: United States

Price target: $80

Upside to target: 24.2%

Thesis: “The company’s strategy in discrete is to cross-sell into pharma, food & beverage, and other end markets … We view the pending OSI acquisition as a good strategic fit (announced in August 2020).”

Source: Bank of America

1. Siemens

Siemens




Markets Insider



Ticker: SIE.DE

Country: Germany

Price target: 143 EUR

Upside to target: 26.5%

Thesis: “[Siemens Digital Industries] is the largest global industrial software and automation asset, now delivering revenue of over EUR15bn, of which over 25% is software. The business has the broadest offering in terms of both capabilities and end markets of any of the industrial automation and software providers.”

Source: Bank of America

Get the latest Bank of America stock price here.

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