The world is changing at a rate that most of us cannot comprehend. It's been called the Fourth Industrial Revolution and, like those that have gone before, it is ushering in new technologies, creating new forms of wealth and costing some people their jobs.
Klaus Schwab, founder and executive chairman of the World Economic Forum, described it in an article published last year as being "characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres."
He wrote: "The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance."
It's happening everywhere we look. Robots are building cars and mining copper. Biotechnology is being used to create miracle drugs. Artificial intelligence is advancing at an almost frightening pace. Driverless cars are almost here.
This new Industrial Revolution is just getting started. It will continue for many years to come, bringing with it both opportunity and disruption. Nothing we do will stop it. Rather, we need to recognize what is taking place and adjust our investment strategies accordingly. To that end, I've been researching companies that are future leaders in the new technologies that will shape the lives of future generations.
ABB Group
One of them is ABB Group, a Swedish-Swiss company based in Zurich that trades as an American depositary receipt as ABB Ltd. on the New York Stock Exchange.
ABB can trace its history back to the late 19th century and employs 132,000 people worldwide. The company is a world leader in robotics, industrial automation, clean energy and software development. It is the world's largest builder of electricity grids, a leading maker of electric-car infrastructure and a manufacturer of solar-power equipment.
ABB has an active presence in Canada. Last month, it opened a $90-million state-of-the-art Canadian headquarters in Montreal. Campus Montreal, as the company calls it, houses the company's North American Centre of Excellence in E-Mobility. It will support the development of "environmentally friendly, energy-efficient transport networks, including electric buses and trains, and will bring together transit operators, power utilities and engineering experts to address challenges related to building smart cities and sustainable mobility solutions for Canada."
The company recently reported first-quarter results that showed a 45-per-cent year-over-year increase in net income to $724-million (U.S.), or 34 cents a share. Revenue was $7.85-billion, down 1 per cent in constant currency terms, while cash flow from operating activities was ahead 102 per cent over last year, to $509-million.
However, orders were down 9 per cent from a year ago because of fewer large orders in the company's industrial automation and power grids sectors.
Potential investors need to recognize that this is a mature company that will not display the growth characteristics of new high-tech companies such as Apple, Facebook, Alphabet, Amazon, etc. However, it's significant that the best results in the quarter came from the robotics and motion division, which saw a 4-per-cent increase in orders and a 3-per-cent jump in revenue.
Growth initiatives
The company continues to grow by acquisition. In April, it bought Bernecker & Rainer (B&R), an Austrian industrial automation company for a price rumoured to be about $2-billion. B&R has annual sales of about $600-million.
ABB also recently announced that it is partnering with IBM's Watson Internet of Things to develop new technologies that will help companies improve quality control, reduce downtime and increase the speed and yield of industrial processes. "ABB and IBM will leverage Watson's artificial intelligence to help find defects via real-time production images that are captured through an ABB system, and then analyzed using IBM Watson IoT for Manufacturing," the news release said.
While it may not have the glamour of the Silicon Valley companies, ABB is well positioned for future growth as the Fourth Industrial Revolution takes hold. The ADR shares pay an annual dividend. The most recent payout was 75.5 cents a unit in April for a yield of 3 per cent, based on Wednesday's closing price of $25.18.
The trailing 12-month price-to-earnings ratio is on the high side at 25.4, with a forward P/E of 18.2. However, the shares have been in an upward trend since the start of the year and have now moved well above the 50- and 200-day moving averages.
Ask your financial adviser whether this stock is suitable for your portfolio.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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Gordon Pape