Morningstar

2 Undervalued Automation Companies for Sustainable Investors

Sika and Zebra Technologies leverage automation and sustainable practices, Stewart Investors says.

Collage illustration of a robot and a semiconductor inside a pie chart, with graphical elements in the background.
Securities in This Article
Sika AG
(SKFOF)
Zebra Technologies Corp Ordinary Shares - Class A
(ZBRA)

For sustainable investors, automation is a tricky subject. It helps companies compensate for labor shortages and an aging population. But it’s also viewed as “taking people’s jobs away and leading to less economic empowerment,” says Clare Wood, portfolio specialist for Stewart Investors.

Nothing could be further from the truth, Wood says in an interview. “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.”

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. Of these companies, we looked for those with the highest Morningstar Rating, suggesting that the companies are undervalued. Sika SKFOF has a 5-star quantitative rating, and Zebra Technologies ZBRA has 4 stars.

How Morningstar Rates Stocks

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.

2 Undervalued Companies

1) 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.

2) 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. The firm primarily serves the retail, transportation logistics, manufacturing, and healthcare markets, designing custom solutions to improve efficiency for its customers.

“We award Zebra Technologies a narrow economic moat rating. We think its customers bear steep switching costs as Zebra’s solutions are deeply embedded in workflows and processes. 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.”

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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