Artificial intelligence (AI) has engulfed the headlines in a frenzy of fortune and fear. While AI is nothing new, the integration of AI into applications consumers regularly use is a major development. Even Warren Buffett and Charlie Munger discussed AI and robotics at the Berkshire Hathaway annual meeting. But like most trends, investors shouldn't chase ideas just because they look good at first glance.
Zebra Technologies (ZBRA 4.71%), ABB (ABB +1.30%), and Honeywell International (HON +1.63%) are three established companies that are making meaningful investments in new technologies. However, all three companies are far from pure-play AI stocks, making them balanced ways to gain exposure to AI and robotics.
Here's what makes each stock a great buy now.
Image source: Getty Images.
Zebra: Offering a broad suite of AI and robotics tools
Scott Levine (Zebra Technologies): It may be a little early to find summer sales in stores, but those looking for leading AI and robotics stocks have a great opportunity to snag a bargain with Zebra Technologies. Between a disappointing first-quarter 2023 earnings report and a flurry of downgrades from analysts, shares of Zebra have suffered.
However, the sell-off has been excessive, and patient investors with the stomachs for short-term volatility have a great opportunity to pick up Zebra's stock while it's sitting in the bargain bin.
In addition to providing solutions for assisting in supply chain management, Zebra offers customers various AI and robotics solutions -- offerings that have increased recently thanks to several acquisitions.
In 2021, for example, Zebra acquired Antuit.ai, an AI-powered software-as-a-service (SaaS) provider. Using Antuit.ai's AI solutions, Zebra offers customers the ability to better predict customer demand in various locations, helping to allow for more efficient ordering.
With regard to its robotics offerings, Zebra acquired Matrox Imaging in 2022, expanding and diversifying its portfolio of machine vision products, software, and services. According to Zebra, the 3D sensors and smart cameras (among other things) that Matrox Imaging offers "enable industrial customers to lower their cost to manufacture products, improve product quality, and increase compliance and yield."
NASDAQ: ZBRA
Key Data Points
Although Zebra has pursued growth through acquisitions recently, it has maintained a judicious approach to leverage. Currently, Zebra has a net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 1.6, so the company can continue executing acquisitions -- expanding its AI and robotics offerings -- without jeopardizing its financial health.
Down about 26% from their 52-week high, shares of Zebra are changing hands at 17.1 times forward earnings. While not necessarily a screaming buy, the stock is attractively priced considering its five-year average multiple of 19.8.
ABB: Looking to margin expansion and long-term growth
Lee Samaha (ABB): This European industrial giant (with a U.S. listing) continues its turnaround under CEO Bjorn Rosengren. Since his appointment in 2020, its operating margin has been on an upward trend, and management expects more progress in 2023.
Data by YCharts
It's a welcome development from a company. Moreover, it's a sign that management should be able to release the full value from an exciting set of businesses. They include one of the world's leading robotics and discrete automation businesses.
ABB is one of the top process automation companies in the world. Don't underestimate the "electrification of everything" trend; it's been one of the top performers this earnings season and promises long-term secular growth. For reference, ABB generates the bulk of its revenue and earnings from its electrification (smart buildings, smart power, electrical distribution, and installation products) business, which includes a leading electric vehicle charging business.
Rosengren's actions include a fundamental restructuring of the company's operations and active portfolio management, including selling non-core businesses, spinning off businesses, and refocusing ABB on its core businesses.
As such, if you want to play the theme of increasing investment in automation, robotics, and the electrification of everything trend, ABB is one of the best options available.
OTC: ABB
Key Data Points
Honeywell: The makings of a lifelong investment
Daniel Foelber (Honeywell): AI behemoths in the tech sector and the semiconductor industry have rightfully garnered the spotlight lately. But there are plenty of opportunities to invest in AI and robotics outside of tech. And many of these opportunities exist in plain sight.
Honeywell is one of the largest U.S.-based stocks by market capitalization, so it's not exactly a hidden gem. But it is undervalued relative to its growth potential.
The company has consistently invested in the industrial internet of things (IIoT), which refers to linking the physical work with the digital world. IIoT includes AI, robotics, machine learning, and automation. At its core, IIoT is about improving asset efficiency by using sensors to collect and manage data. Using IIoT, traditional industrial companies can unlock growth and gain a better understanding of their operations.
Honeywell Forge Asset Performance Management is the company's flagship software solution. Forge provides a variety of insights and can help operators prevent issues before they occur, thereby reducing downtime and boosting performance.
NASDAQ: HON
Key Data Points
Honeywell's solutions have economic and environmental benefits. In order to achieve environmental, social, and governance (ESG) goals -- not to mention publish accurate sustainability reports -- companies need to have a clear understanding of the ins and outs of their operations. Honeywell can help companies do that across pretty much every subcategory of the industrial sector.
Honeywell's stock provides a multi-decade upside from its IIoT investments. But it's also a reliable, established company that investors can count on to get through a broader economic downturn.
Honeywell also has a growing dividend with a 2.1% yield and an impeccable balance sheet. The stock's forward price-to-earnings ratio is 21 -- indicating that it isn't all that expensive relative to its near-term earnings. But if you factor in long-term growth potential, Honeywell stock looks like an even better value.
