We just got some badly needed positive economic news that’s great for the nation and the stock market.
Last month, the U.S. added a seasonally adjusted 916,000 jobs. As a result, the Labor Department said the jobless rate fell to 6%.
The startling turnaround bodes well for economic growth in the second half of this year.
But hidden in this excellent news is a problem in need of a high-tech solution. Older workers are retiring now faster than they have been in nearly a decade, leaving many firms at risk of a talent shortage.
That’s why there’s a “tech employment” sector with prospects even better than the economy at large.
It combines high-speed semis, complex software, machine learning, even AI.
Of course, I’m talking about machines – robots to be precise. Even as workers return to their jobs, there’s just no slowing robot adoption.
Statista believes the sector will be $498.6 billion in 2025.
But you want to make a move before that happens to make the biggest gains.
Like with this one investment…
The Need for Workers
Now then, I want to make it clear that I’m not in favor of firing workers and replacing them with robots.
Nothing could be further from the truth. See, robots actually could be a boon to the US as millions of Baby Boomers retire.
Indeed, Japan embraced robots decades ago as a way to deal with the retirement of a generation of seasoned workers.
And after we recover from the coronavirus lockdowns, I still expect to see a shortage of skilled workers, especially older ones.
Consider that pre-Covid, 10,000 boomers were retiring daily. A recent report by Pew Research says the pandemic greatly accelerated that trend.
In last year’s third quarter alone, an extra 3.2 million of those born between 1946 and 1964 said goodbye to their jobs.
That was a stunning 56% higher than the average for similar quarters for the previous eight years.
In other words, for thousands of US firms, employing robots won’t be a luxury – it will be downright necessary.
This is why machines known as “cobots” will become so important in the years ahead. As the name implies, these are sophisticated devices that can work right alongside humans.
And that’s one of the reasons why I believe Teradyne Inc. (TER) is such a great investment. And it’s not surprising, since, this storied leader has a knack for getting out in front of big tech trends.
So, a merger it made back in 2015 is looking pretty savvy these days. That’s when it made a big move into cobots by paying $285 million to buy Universal Robotics, the leader in the field with 50% annual growth.
You have to understand that Teradyne is no stranger to automation. You could say it’s in the firm’s DNA.
Fact is, the story here actually goes back to the late 1940s when the firm’s two founders met at MIT. They became fast friends and formally launched the firm in 1960.
Talk about humble beginnings…they set up shop in a rented space in downtown Boston above a hot dog stand.
Their hook: help clients check the quality of the electronic components they were making. There was just one problem – testing devices in high-volume was fraught with challenges.
Alex d’Arbeloff and Nick DeWolf then had an epiphany that would change the company’s course and put it on the path to making shareholders wealthy.
The two thought that if testing could be automated, it could be done far more effectively. In that manner, they provided clients with badly needed scale and solid margins for Teradyne.
This also gave Teradyne a big lead in automated systems, one it maintains to this day.
Its marquis client list includes Samsung, Intel, IBM, Texas Instruments, and most of the biggest defense contractors and consumer electronics makers.
Here’s an analogy that will help it all make better sense. Think of it as a testing and automation spider whose web touches defense, telecoms, healthcare, and the Internet of Everything.
A Basis for Growth
Teradyne even offers us a strong e-commerce automation hook. It supplies the robots that grab items off warehouse shelves for packing and distribution.
In 2018, the firm upped the stakes by buying Mobile Industrial Robots (MiR) and is seeing that business soar. The MiR units are basically land rovers.
They are autonomous mobile bots designed for the logistics market. They perform jobs like packing boxes, managing shipping sizes, moving and warehousing goods.
Yet, as important as automation is to the firm, where it shines even brighter is in its ability to service the $439 billion semiconductor industry.
That makes this a great “twofer” investment at a time of intense global demand for computer chips across the board.
At this point, well over half of Teradyne’s business is from its semiconductor testing and services division. And that will likely be a source of rich profits for years to come as chip sales grow an average of 6.5% a year.
No wonder Teradyne is growing per-share profits by 29% annually, which means they double roughly every 2.5 years.
To be clear, the firm reports earnings on April 20. If it misses forecasts, the stock could get hurt. But you should look at that as a buying opportunity. The company has outperformed its peer group for years.
Cheers and good investing,
— Michael A. Robinson
Source: Strategic Tech Investor