Almost everyone knows that automation is going to be a very big trend over the coming decades. The AI revolution is just getting started. But it’s clear this transition toward an AI-driven future has begun in a much different way than many thought. People expected blue-collar jobs to be replaced first by AI, and almost everyone thought that white-collar jobs were not going to be disrupted in decades to come.
Of course, reality has struck, as AI can help do a lot of white-collar jobs these days. That said, it’s also true that this technology isn’t yet reliable enough to do so without human intervention. Now, it hasn’t even been two years since ChatGPT was released, so it is natural to think that AI will be disrupting the white-collar sector greatly a decade from now or less. Even worse for investors, many of these AI companies that target the white-collar sector already trade at steep premiums and are priced for perfection.
I think it makes sense then to start buying automation stocks that have exposure to robotics and industrial/blue-collar sectors. These are likely to be popular in due time, especially as on-shoring trends accelerate. Here are three automation stocks to consider with this lens.
UiPath (PATH)
UiPath (NYSE:PATH) is a tech company that makes automation software for industrial purposes. It is the leading pure-play automation software pick, and I think it is the best among automation stocks. Yes, UiPath carries an expensive valuation. But if the market holds that premium as it grows, I don’t expect disappointing returns from a capital appreciation perspective.
UiPath announced very positive results this past quarter, surpassing Wall Street estimates on both revenue and earnings. The company’s automation solutions platform continues to gain significant traction in the market, with annual recurring revenue rising 22% year-over-year to $1.46 billion. A noteworthy achievement was the company’s record 27% non-GAAP operating margin, driving profit margins for the full year to 18%. That’s a 1,100 basis point improvement. This level of financial discipline in managing costs is impressive, and bodes well for UiPath’s journey toward greater profitability over time.
I think a key priority for the company will be to successfully capitalize on the growing wave of AI-driven automation. Management referenced a study showing that 70% of executives view artificial intelligence incorporated into automation technologies as critically-important for achieving their strategic business objectives. UiPath seems well-positioned to serve all these businesses in the years ahead.
GXO Logistics (GXO)
GXO Logistics (NYSE:GXO) is a company that uses AI in its logistics operations. It piloted AI-enhanced robots in February, and I think GXO could roll these out to many of its warehouses in the coming years.
This stock hasn’t been the best performer so far this year, and is actually down 10% so far since the start of January. The company is also not profitable, though I think both these factors will change in the coming quarters. GXO Logistics had a very solid Q1, with total revenue rising 5.7% year-over-year. This beat estimates by a healthy 1.7%.
The company’s adjusted EBITDA also came in at $154 million for the quarter. Organic growth for GXO appears to be accelerating based on the success they saw in signing new business contracts. The company brought in $250 million of contracts over the past quarter, an impressive increase of over 55% from the same period a year prior. These new deals include major contracts with well-known companies like Boeing (NYSE:BA), Guess (NYSE:GES), and Puma (OTCMKTS:PUMSY).
Particularly noteworthy is the growing tendency of GXO customers to pursue longer-term partnerships for outsourcing their logistics needs, such as the 20-year agreement valued at $1 billion signed with Levi’s (NYSE:LEVI). The current size of GXO’s sales pipeline now sits at $2.2 billion, and has positive momentum moving forward. The upside potential for GXO stock looks very juicy.
Analysts expect earnings per share to rise from $2.80 to $4.40 over the next three years, driven by revenue increasing from $11 billion to $17.5 billion over the same timeframe.
Paying just 19-times forward earnings seems cheap for this sort of growth. This is definitely one of the best automation stocks out there.
SS&C Technologies (SSNC)
SS&C Technologies (NASDAQ:SSNC) is different from the other two companies on this list, as it is not oriented towards industrial uses. However, the company still plays a key role in automation across many industries. The company recently released its “Hybrid Intelligent Automation” platform in March. This is a cloud-hosted automation service. The company’s Blue Prism platform is already used by many financial, healthcare, and insurance companies.
Moreover, based on a study by Forrester Consulting, the company’s AI-powered automation platform is delivering a return on investment of more than 330% over the past three years.
SS&C had a solid earnings season, with Q1 revenue rising 5.3% year-over-year to $1.44 billion. The company’s adjusted earnings per share of $1.28 beat analysts’ estimates by 6 cents. A key driver of growth was the continued strength seen in SS&C’s businesses focused on alternative investments, retirement services, and the ALPS Advisor division. Revenue from recurring sources in the Financial Services segment rose 6.5% over the past year.
SS&C also continued making progress in paying down its debt, reducing borrowings by $79.9 million during the quarter, and lowering its net leverage ratio to 2.95-times. The growth with this company isn’t flashy. But I see a lot of potential going forward. The stock also carries a 1.5% dividend yield, and dividends are rising fast.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
