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Fourth quarter perfect storm hits Robo Global index

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Having returned a total of 51 per cent in the prior two years, ROBO Global’s Robotics & Automation Index declined 22 per cent during the fourth quarter of 2018 on the back of what the company describes as a ‘perfect storm of monetary tightening, geopolitical uncertainty, and fears of a slowing US economy’. 

ROBO Global believes that, in many respects, the current situation appears comparable to Q4 2015 with best-in-class robotics and AI stocks trading on valuations unseen since the inception of the index in 2013.

The firm writes that while healthcare and consumer robotics delivered double-digit returns, these were not enough to offset significant losses in the more cyclical, industrial-oriented sectors of the index. 

“Manufacturing and industrial automation declined as economic momentum weakened in Asia and Europe and US-China trade issues took a toll on the top three industrial and engineering powerhouses, Japan, Germany, and Taiwan.”

ROBO Global writes that even in the face of a more cautious outlook for industrial end-markets due to weakening order rates, earnings estimates in aggregate have been relatively stable, supported by upgrades in healthcare, consumer products, security, and energy.

The result is that the ROBO index is trading on a median forward P/E of 19x, 3x below its long-term average valuation of 22x, a level unseen since January 2016, near the bottom of the last industrial cycle. 

The firm writes that this compares to 27x in the summer of 2017.

Looking forward to 2019, the firm expects another year of double-digit EPS growth as industrial and factory automation markets bottom out before summer, and structural growth in demand continues across a variety of other RAAI technologies such as sensing, computing, and AI, and applications including logistics, healthcare, and 3D printing, among others.

ROBO Global concludes: “As we enter a new year, robotics, automation, and AI (RAAI) continues to gear up for the future. All expectations point to an even bigger, faster, and more innovative year than the last.

“Indeed, 2019 will be the year that business historians will view as the pivotal moment in time that divided those companies that fought to protect outdated methods and processes, and those whose successes were driven by their belief and investments in a flexible, RAAI-driven future.”

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