The use of automation by public companies can confront sustainable investors with a difficult choice: On the one hand, automation helps companies compensate for labor shortages and an aging population. But it can also be viewed as “taking people’s jobs away and leading to less economic empowerment,” says Clare Wood, portfolio specialist for Stewart Investors.
In an interview with Liz Angeles, a member of the Morningstar Development Program as a financial product specialist, on the Morningstar website, Wood says that sustainable investors should not automatically turn away from automation.
“The truth of it is there are not enough skilled manufacturing personnel in the workforce, the workforce is aging in most of the developed countries and China, and we still need to make things. Automation will need to play a key part.” Automation “helps maintain people’s quality of life in the face of these demographic headwinds,” Wood told Angeles.
Stewart Investors, which has $17.7 billion in assets under management, recently identified six companies around the world that it believes contribute to sustainable development while applying automation.
Morningstar analysts looked at those six companies, and found that two of them had a high Morningstar Rating, suggesting that the companies are undervalued: Sika SKFOF has a 5-star quantitative rating and Zebra Technologies ZBRA has 4 stars.
The Morningstar Rating compares a stock’s current price with Morningstar’s estimate of its fair value, which is based on the present value of the company’s future cash flow. A 4-star stock is undervalued, and a 5-star stock is significantly undervalued.
Here’s Morningstar’s brief overview of the two stocks”
Sika Group: Established in 1910, Switzerland-based Sika produces specialty chemicals primarily used by the construction sector (85% of sales). Its products are mainly used for bonding, sealing, reinforcing and protecting in the construction and automotive industries. Approximately 70% of its products have a positive impact on sustainability for customers. Sika has a global manufacturing footprint of more than 400 factories spread across over 100 countries. Stewart, which has held Sika since January 2022, notes that revenue, EPS, and free cash flow have risen 10%, 8%, and 30% per year, respectively, over the five-year period through Dec. 31, 2024.
Zebra Technologies: Zebra Technologies is a leading provider of automatic identification and data capture technology to enterprises. Its solutions include barcode printers and scanners, mobile computers and workflow optimization software. “With its end-to-end portfolio of specialized products and integration of software, we think Zebra’s customers would face monetary cost and significant time investment to switch AIDC vendors, in addition to risking efficiency losses. As such, we think Zebra will be able to earn excess returns on invested capital for the better part of the next decade,” said analyst William Kerwin.
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