Transcription
The robotics revolution isn't coming, it's already here. In fact, it's already showing up on the factory floors, warehouses, defense platforms, and data centers.
And the obvious way to play it is to buy the companies making the robots. Problem with that trade is those names have already run up too much. That means you have to dig a little bit deeper to find the next winners. The first place to look is in the supply chain. Look for the companies that quietly enable the revolution without being the revolution.
Today, I've got four small caps actively supplying the robotics boom from four completely different angles. And they all rank highly in our quant rating system. By the way, I'm Steve Reitmeister, but all my friends call me Reity. I spent nearly 20 years as editor-in-chief of Zacks.com covering exactly these kinds of opportunities. And I'm currently a partner at Wall Street Zen.com, where our quant team analyzes 115 different factors across thousands of stocks to find the names Wall Street may be sleeping on. Please hit the like button if you want more deep dives in small caps the market hasn't figured out yet. It tells the algorithm to show you more videos along these lines in the future.
Before I get to the stocks, a little context about why robotic stocks are so timely right now. We are in a major inflection point. Labor costs are at record highs, and they are not coming down anytime soon. Every major manufacturer, every warehouse operator, every defense contractor on the planet is under the same pressure: cut costs, move faster, do more with fewer people. Robotics is no longer the solution of the future. It's a solution being deployed right now today on factory floors and fulfillment centers across the world. And AI is only accelerating the change. Every breakthrough in artificial intelligence makes robots smarter, cheaper, and faster to deploy. Goldman Sachs projects the humanoid robotics market could reach roughly 38 billion by 2035, while Morgan Stanley believes the long-term opportunity could eventually scale into the trillions. The space is still early, but investor interest and capital are already moving towards the companies building the next generation of automation infrastructure.
Let's move on to these stocks, but first just remember that I'm sharing the data here, but I'm not your personal advisor. You are responsible for your own investment decisions, so always do your own due diligence on any potential investment.
Okay, with that being said, let's move on to stock number one in Mesa Laboratories with the symbol of MLAB. I want to be up front, this one takes a tiny bit of imagination to connect to the robotics theme, but stick with me because the compelling data on this company is hard to ignore. Mesa makes precision life sciences tools and uh quality control solutions. Uh calibration instruments, uh sterilization, uh testing equipment, automation, protein analysis system used in pharmaceuticals, medical devices, and health care manufacturing. Okay. Every robot pumping out vaccines, uh surgical implants, or insulin pens has to prove that what came off the line is sterile and safe. Mesa makes the indicators and instruments that do exactly that. And there's a fresh catalyst here. The company recently appointed a new CEO who previously oversaw a $2 billion uh life technologies firm and has successfully run multiple life sciences companies. Now, new leadership with serious scale experience coming into a sub-billion-dollar company like Mesa, yeah, that makes for a very interesting setup. But there's more. Mesa recently delivered one of the biggest earnings beats of any small cap this year. Q3 adjusted earnings uh per share came in at $3.07 against a forecast of a buck 40. Yeah, that's a stellar 119% earnings beat. And it's not a one-quarter fluke. Mesa has beaten Wall Street expectations for three straight quarters with impressive results like these. Now, even better is that future earnings expectations are increasing. Analysts now expect earnings to grow 110% a year, blowing away the industry average. Here's one more thing that caught my attention. Insiders have been actively buying shares over the past year with several directors stepping in at prices well below where the stock trades today. When company insiders are buying near the lows instead of selling, that usually foreshadows more upside ahead. So, what does the Zen rating say, right? Mesa has an elite A rating, which means a strong buy recommendation. Even better is in the top 1% of all 4,600 stocks we track in the model. As we drill down at the component grades, we see the standout is for financial strength. This tells you it is a well-run company with a strong balance sheet, right? Value, growth, safety, and sentiment all come in in the top 15% of stocks we track. That makes for a very well-rounded fundamental profile. The one laggard is the score for momentum. It's It's below the average, right? Gladly, our recent price action suggests that might be turning to a positive in the days ahead. Wall Street coverage for Mesa is light with only one analyst reviewing the stock, but that's not unusual for a hidden gem small cap. In time, more analysts would join the party with each new buy rating acting as a catalyst for shares. But, when you consider their near-perfect Zen rating, a recent 119% earnings beat, brand-new CEO with proven experience, and heavy insider buying, then you appreciate the appeal of this stock.
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All right, let's roll on to stock number two with Energy Services of America with the symbol of ESOA. Now, if pick number one was about the quality control layer, then pick number two is about the infrastructure layer. AI and robotics are massively power hungry, is where ESOA comes into the picture. Every data center training an AI model, every automated warehouse running 24/7, and every electrified factory floor, they need enormous amounts of energy. Now, Energy Services of America provides the physical infrastructure to make it happen, like natural gas pipelines, water distribution systems, and electrical substations. The most recent earnings report put everyone on notice that something special is happening here. Revenue was 17% above expectations. Earnings was 45% above expectations, and their backlog of business swelled by 15% to record levels. This gives great visibility to more growth ahead. This has analysts giddy now expecting 155% earnings growth per year running over the next 3 to 5 years. Okay, the Zen rings also paints a compelling picture. Just like Mesa, we are talking about an elite A-rated stock in the top 1% of all stocks we track. As for the component grades, we find that sentiment also scores in the top 1%. This is our smart money indicator as it aggregates data across institutional money flows, insider activity, and Wall Street analyst signals. When a stock scores in the top 1% for sentiment, it's an early warning that the bigger players could be positioning before the retail crowd catches on. ESOA also scores highly for momentum in the top 9%. Growth is not too shabby either in the top 14% all stocks. Note, this is about the consistency of growth, which is the best signal of likely more earnings beats happening in the future. As for the potential risk, this is only a 262 million market cap company. So, liquidity can be thinner than you're used to. On top of that, energy infrastructure spending is cyclical. A recession or a collapse in energy prices could slow things down considerably. But, the AI and robotics infrastructure buildout is a long duration trend, and data centers aren't getting less power hungry. Thus, the outlook for ESOA is quite exciting.
Okay, that's pick number two, the infrastructure layer. Let's move on to yet another dimension of the robotics arena with stock number three, RF Industries with the symbol of RFIL. This is perhaps the one with the most to prove on the list. It's a very small company with a market cap of 155 million. Yet, the growth opportunity is quite large. Every automated system in the modern economy needs physical connectivity. We're talking cables, connectors, RF components allows machines to talk to each other and the networks that control them. RF Industries makes those components, and they make them for industrial automation, aerospace defense, and wireless infrastructure. And here's the exciting new part, edge data centers. Okay, the company is in the middle of a strategic pivot that most of the market has completely missed. This showed up prominently in the company's recent 100% earnings beat, which led to an immediate 14% pop in shares. Luckily, there's reason to believe in much more upside ahead. That's because their backlog is the best possible forward indicator in that left 200% according to the most recent report. As I referenced earlier, the strategic pivot is the part nobody's talking about. Management is moving RF Industries out of legacy dependency on cyclical wireless carrier spending and into higher value markets like aerospace and medical. And most interesting of for this bullish thesis is the edge data centers, right? They've developed a direct air cooling system specifically for edge data centers that delivers up to 75% energy savings compared to legacy cooling. That's the kind of product that matters enormously as AI infrastructure gets pushed closer to the end user. Looking at the Zen ratings, RF Industries earns an overall B, which is a solid buy recommendation. This puts in the top 20% of all stocks we track according to its fundamental profile. Luckily, it scores some compelling component grades including a top 1% showing for sentiment. Again, that's the sign the smart money is already circling the stock. And as for the risk, I'll be real. This is a microcap stock that has already run up a lot over the past year. So, related to that last note, this is not a cheap stock on a traditional metric. It's trading near its all-time highs, which shows up in its top 8% showing for the momentum grade. That said, I find the setup compelling. A microcap pivoting out of legacy telecom into data center cooling and aerospace with sentiment positioned in the top 1% of our system, that's a stock worth watching. But just remember, this is a more speculative pick and if you're going to get into these shares, be sure to size your position accordingly.
Okay, before we get to the closer, if you want more top stock picks like this, then consider subscribing to my free stock of the week newsletter. Before we get to the last pick in the video today, a little quick reminder. Every Monday I share my stock of the week with investors. This blends the outperformance found in the Zen Ring's quant model, along with my greater than 40 years of investing experience. So, get my future stocks of the week for free by clicking the link in the description or scanning this QR code.
Now, on to our fourth and final stock, we're talking about Protolabs with the symbol of PRLB. Everything we covered so far has been a different layer of the robotic supply chain. Quality control, energy infrastructure, physical connectivity. Whereas Protolabs is the AI-driven digital factory itself. They run automated factories that produce custom parts on demand. Think like CNC machining, 3D printing, injection molding, and sheet metal fabrication. When a defense contractor needs a custom drone component, or a medical device company needs automated surgical tool prototype, or an aerospace firm needs ITAR-compliant machine parts, Protolabs is often the company that builds it. And they do it faster and more efficiently than anyone else because the factory itself is essentially a robot. Analysts are forecasting Protolabs to grow earnings over 105% a year going forward over the next 3 to 5 years. That is a full five times faster than its industry peers. And this isn't a projection based on hope. This is a projection based on the track record. Protolabs has beaten Wall Street earnings estimates for 13 consecutive quarters. 13 quarters in a row where analysts set a target, usually higher than it was before, and management delivered something even better. This is a company that has operationalized consistent outperformance. Typically, when you find a small cap with this kind of earnings beat streak, Wall Street eventually catches up. That may be on the way as the most recent earnings beat, which also had a a raise in guidance for the future. That led to a 19% rise in shares immediately on the news. And the outlook keeps getting better. That's because they just launched Prodes a new AI-powered manufacturing platform. Plus, they are now partnered with the Space Foundation to push deeper into aerospace. I also want to point out their impressive balance sheet with nearly no debt to speak of, healthy operating cash flow, meaning this is a company that has the ability to invest in growth without having to raise capital at a high interest rate. The Zen ranks tells you this is no ordinary small cap. Once again, we have an impressive A rating and it ranks in the top 4% of all stocks we track. Lots of impressive component grades including top 19% for financials, top 9% for momentum, top 6% for sentiment, top 5% for safety, and also top 5% for growth. This is a well-rounded and attractive makeup for any investment. Now, the risk here is that the growth prospects may already be baked into the price. This is evidenced by the value grade of C. Now, that's not a red flag, but it's kind of a flashing yellow that we need to need to consider. But when you have a company rated in the top 4% of our system, growing earnings at 105% per year, with a strong balance sheet, a 13-quarter beat streak, and a product lineup perfectly aligned with the biggest megatrends in manufacturing, this is a compelling investment story. Meaning, Pitney Bowes Labs is the the closing stock for good reason.
Now, I want to hear from you down in the comments section below. Which of these four stocks seem like the best pick to you? Or do you have your eye on another robotics play that I didn't mention here? Tell me all about it. I generally want to hear what you think are the most promising names in the robotics space. And if you want to see more timely stocks, then I strongly recommend you check out my video focused on another megatrend emerging from the AR revolution. I'm talking about the need for more energy, leading me to the best nuclear stocks to buy right now. Be sure to check it out. >> Mhm.