The three stocks on this list are all investments on the increasing automation and digitization of the industrial sector and the growth opportunities it brings for the companies' revenue. They might not be the cheapest stocks based on current earnings, but they all have excellent long-term potential.
Here's why industrial software company PTC (PTC -1.23%), engineering-simulation software company Ansys (ANSS -1.81%), and Rockwell Automation (ROK 0.38%) are the sort of stocks to buy and hold for a long time.
The automation and digital revolutions are real
It's not always easy to explain such concepts, particularly since they deal with technologies that most of us will never see in action. So I thought it would be useful to highlight what industrial companies were saying about implementing them.
For example, the management of toolmaker Stanley Black & Decker has said that a factory in China or Mexico with 50 to 75 people operating on a line was equivalent to one it's running in the U.S. with just 10 to 12 people. Meanwhile, an updated, fully automated, and digitized factory could be run by just two or three people.
It's not hard to see how automating factories can help companies "reshore" production from countries with low labor costs and, in doing so, help to reduce the complexity in their supply chains -- a major issue over the last couple of years.
Aerospace and defense giant Raytheon Technologies outlined how digitization is transforming its business in reducing development time and increasing factory productivity. For example, using digitally connected design, engineering, and manufacturing, Raytheon reduced requirements on the Army's Optionally Manned Fighting Vehicle by 33%, helping reduce development time in the process. In addition, making a digital twin of a physical factory in Texas resulted in a 10% to 15% increase in the factory's productivity.
Rockwell: automating America
All three companies this article focuses on are partners. As the name suggests, Rockwell is an automation company. In fact, it's the leading U.S. factory automation company, competing with European giants ABB and Siemens.
As CEO Blake Moret noted on Rockwell's last earnings call: "Automation has never been more important in solving our customers' biggest challenges. A large percentage of these global investments are being made in the U.S., where we have the strongest market share, the best channel, and decades-long relationships."
Indeed, Rockwell upgraded its organic growth forecast for 2023 to a range of 11% to 15% from a prior range of 9% to 13% -- excellent in a slowing industrial environment.
The Stanley Black & Decker example above demonstrates the kind of benefits industrial companies can get from automation.
PTC: digitizing the industrial sector
Rockwell partners with, and has invested in, industrial software company PTC. It's a natural partnership, since ABB partners with Dassault Systemes, and Siemens has its own in-house software business.
PTC provides software for computer-aided design and product life-cycle management that helps companies digitally create and manage physical products. It also has the Internet of Things (IoT) software to connect physical objects to the digital world.
That allows them to be digitally twinned to improve performance, such as in the example of Raytheon's vehicle and factory discussed above.
Ansys: simulation software is still in its early innings of growth
Ansys' leading engineering-simulation software works with both PTC and Rockwell.
It's not hard to see why. Ansys' engineering software digitally models and simulates a product's performance -- say, a motor or a turbine in a factory. PTC's IoT software then connects the digital and physical worlds, and the digital twin is validated by monitoring the physical asset's performance against it.
So the increasing adoption of digital twins promises to significantly open up new markets for Ansys software, and it's likely to develop new uses for its technology.
Stocks to buy
All told, there's little doubt that automation and complementary industrial software (which enhances the value added by automation through digitization) is a long-term growth industry, and these three companies are among the best ways to play a very exciting investment theme.
The kind of productivity improvements discussed by the industrial companies earlier are real and tangible. That's the case even in a slowing economy, and it's notable that PTC, Ansys, and Rockwell Automation all reported excellent results in the recent earnings season.
As such, investors can expect many years of growth ahead from all three.
