This Top Robotics Stock Isn’t One You’d Think Of
The rate of technological innovation in the last decade or so has been rapid.
As only a few examples, 10 years go none of the following companies existed.
• Zoom – video conference technology
• Lyft – car transportation/travel
• Juul – e-cigarettes
• Door Dash – Food delivery
• Instacart – Grocery delivery
• Robinhood –Stock trading
• Instagram – Social network
These companies are called “Tech Unicorns.” And they’ve come on the scene in the last decade. Took over their industries. And transformed the world.
EDITOR’S NOTE – The term Tech Unicorn means a tech company was founded in the 2000’s+ and then grew to a $1+ billion valuation.
You no longer must leave your house to interact with people around the world in seconds.
You no longer must go to the grocery store and deal with lines and rude people.
And you can summon a car to take you places in seconds on your phone.
Most of this was unthinkable 10 years ago.
But now they’re part of our everyday lives.
And they’re becoming even more important as we’re locked in our houses away from our friends and family during these coronavirus times, we’re now living in.
In the coming years technology will change even faster with the implementation of The Internet of Things.
The Internet of Things is a time when almost everything we interact with daily will have microchips and sensors in it.
These sensors and chips will spit out data to us to help us improve potentially every aspect of our lives.
From helping get rid of rush hour traffic.
To helping us spot a health issue before it causes major problems in our bodies.
To spotting potential pandemics before they spread around the globe.
To making sure our food is fresh.
The Internet of Things will hook almost everything in our lives to the internet.
These will change us and our lives in both positive and negative ways.
The Internet of Things is already being built. But it will accelerate even more because of our increasing reliance on technology in these coronavirus and social distancing times we’re dealing with now.
In the coming years and decades there will be many stocks that turn into huge winners from the Internet of Things.
But I don’t recommend you invest in smaller Tech Unicorns in the hopes of catching the ride up.
Not because some of them won’t succeed massively.
But because I think it will be almost impossible to spot the winners and invest in them before they skyrocket. While also avoiding the ones that fail miserably and go bankrupt.
I want to bet on solid companies over the long term… Ones that have solid balance sheets and are profitable today.
Not ones “hoping” to earn profits at some undetermined time in the future.
Today I want to show you one robotics stock that will benefit enormously from the Internet of Things… While also being a great company now.
Why Deere & Co Is A Great Robotics Stock
Is that a typo?
Deere & Co (DE) is the world’s leading manufacturer of agricultural equipment… It’s not a tech company?
That statement and question is half right.
It is the world’s leading manufacture of agricultural equipment… But it’s also a leading innovator in agricultural equipment as well.
And its equipment and users are becoming faster, smarter, and more efficient at farming due to its technological innovations.
Much of its heavy-duty equipment now comes with GPS systems that can be use with minimal human support due to the sensors, chips, and equipment in them.
And some are even fully autonomous now.
This trend toward automatic equipment is only going to increase in the future as the world’s population rapidly increases.
Its estimated that by 2050 there will be around 10 billion people living on Earth. If this is true, we’ll need 50% more food than we’re currently growing today to feed everyone.
And this is where Deere and its technology comes in…
As the world’s leader in agriculture manufacturing and equipment it already helps produce much of the world food.
But now with technology and robotics its helping transform farming and agriculture to meet the worlds food needs in the coming decades.
Here’s one example…
Above is a picture of 100% autonomous electric tractor.
The company is also developing semi-autonomous tractors.
Autonomous drones that will spray herbicides and insecticides on plants and trees.
And much more.
These kinds of automated or semi-automated equipment allows farmers to grow and produce more food out of the same land to help feed the world.
At higher rates of efficiency and productivity… And in ways that are better for the environment since many of its products will be fully or partly electric.
One estimate on potato fields showed that the use of Internet of Things related equipment led to…
• 15% less usage of pesticides.
• 25% less water consumption.
Both of which are better for farmers in terms of lower costs to them.
This is also better for us because the foods we’re eating will have fewer pesticides on them and polluting our water supplies.
And this combined with the far lower water usage is also great for the environment as well.
Even though this is being built, developed, and tested now, this is largely for the future though… And it doesn’t tell you how the company is doing today.
Deere is the world leading manufacturer of agriculture products today… And this allows the company to earn large profits and cash flows so it can invest to be a leader in the future too.
Over the last 10 years it earned a total of $32.6 billion in operating profit against a market cap of $55.1 billion as of this writing. And its operating profit margin over the last decade averaged 11.5% per year.
I look for any company to produce above 10% margins on a consistent basis to consider as an investment.
Its produced $2.6 billion in total free cash flow in the last 10 years. And its FCF/Sales margin averaged 1% every year in this time.
On this metric I look for anything above 5% on a consistent basis. Deere’s isn’t great on this metric… But it’s also not the full story.
Its free cash flow production is so much lower than its operating profits because its spending so much on research and development and capital expenditures.
These are things like updating equipment, developing equipment, etc. Things that are necessary to sustain its business now. But also, to continue helping it grow into the future.
Its spending so much on capital expenditures and research and development now so that it can remain the leader in this space into the future. And help us feed the world.
Plus, it pays an 1.7% dividend just to own its shares.
John Deere is an amazing operating company and should remain a leader well into the future with its advances in robotics.
Plus, its undervalued too…
Its current P/E is 19.9.
Its current P/CF is 9.8.
And its current forward P/E is 20.8.
I consider buying companies that have ratios below 20 on all these… As of this writing Deere falls below this metric which means its undervalued.
For all the reasons mentioned above – and the others I didn’t – I recommend you buy Deere.
Not only because it’s a fantastic company now. But also, because it will benefit greatly from the increased usage of robotics in the next several decades to help feed the world.
Deere & Co is a fantastic company.
Its dominated its industry for decades which allows it to earn enormous profits.
This allows the company to reinvest its capital into R&D and capital expenditures to continue staying ahead of competitors.
And this allows it to transition well into The Internet of Things arena so it dominates that too.
If you’re looking for a great Internet of Things and robotics stock to own don’t look to buy one of the tiny companies and hope you get a tech unicorn… Yes, some of them will explode to huge success in time. But many others will implode and go bankrupt.
It will be near impossible to tell which is which in the coming years.
But one thing is for sure, Deere will still be around. It will still dominate. It will still generate enormous profits and cash flows. And it will continue compounding the value of your investment well into the future.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.