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A business at the heart of the Fourth Industrial Revolution
9/22/2017 7:45:11 AM
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Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Monday, August 28, 2017


 

BUILDING WEALTH WITH GORDON PAPE
 

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. We’re seeing 3D printing used to build everything from precision tools to entire buildings. Artificial intelligence is advancing at an almost frightening pace. Driverless cars are almost here.

The realities of such rapid change are at the core of the forces that brought Donald Trump to power. Mr. Schwab describes it as “a job market with a strong demand at the high and low ends, but a hollowing out of the middle.”

He sums it up this way: “This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate. It also helps explain why middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness. A winner-takes-all economy that offers only limited access to the middle class is a recipe for democratic malaise and dereliction.”

These words were written before the Brexit vote and the U.S. election!

Leaders in new technologies

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.

One of them is ABB Ltd. (NYSE: ABB), a Swedish-Swiss company based in Zurich that trades as an American Depository Receipt on the New York Stock Exchange.

ABB can trace its history back to the late 19th century, employs 132,000 people worldwide, and ranks at number 286 in revenue terms on the Fortune 500 list. 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. Recently 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% year-over-year increase in net income to $724 million ($0.34 per share; results in U.S. dollars). Revenue was $7.85 billion, up 3% in constant currency terms, while cash flow from operating activities was ahead 102% over last year, to $509 million.

However, orders were down 3% from a year ago (9% in U.S. dollar terms) due to fewer large orders (over $15 million) in the company’s Industrial Automation and Power Grids sectors. The order backlog at the end of March was $23 billion, down 2% (1% in U.S. dollars) from the same time in 2016.

Potential investors need to recognize that this is a mature company that will not display the growth characteristics of new high-tech companies like 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 7% increase in orders (comparable currency) and a 5% 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 press release said.

“Previously these inspections were done manually, which was often a slow and error-prone process. By bringing the power of Watson’s real time cognitive insights directly to the shop floor in combination with ABB’s industrial automation technology, companies will be better equipped to increase the volume flowing through their production lines while improving accuracy and consistency.

“As parts flow through the manufacturing process, the solution will alert the manufacturer to critical faults – not visible to the human eye – in the quality of assembly. This enables fast intervention from quality control experts.”

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 US$0.75 per unit in August for a yield of 3.3% based on recent prices.

The trailing 12-months p/e 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 advisor if this stock is suitable for your portfolio.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletters, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

BUILDING WEALTH WITH GORDON PAPE
 

 
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