by Carl Delfeld, Global Markets Strategists, The Oxford Club
Thursday, June 13, 2013: Issue #2055
One of my favorite television series as a child was The Jetsons. Its creators worked to give us their vision of life in 2062 – a full century from the show’s debut in 1962.
We’re halfway there.
But many of the gadgets in the show still seem farfetched. First to mind is the folding space car that fits neatly into a briefcase. And how about eating nothing but a pill for dinner?
On the other hand, the family’s robot maid “Rosie” highlights an area where we are well ahead of the game.
Take “Ava,” the 5-foot robot with an iPad for a brain and Xbox motion sensors to help it navigate around a kitchen or living room. It’s built by Boston-based iRobot (Nasdaq: IRBT).
IRobot has already sold millions of disc-shaped Roomba vacuum cleaners, and its bomb-disposal robots have protected soldiers in Iraq and Afghanistan.
The military is a key player in the growth of robotics.
The Robot Report notes that Recon Robotics received Marine and Army orders for 1,100 of its Scout XT robots (a $13.9 million deal). And iRobot received a Department of Defense order for 105 of its FirstLook robots (worth $1.5 million in sales).
The health sector is another promising opportunity for robot makers.
IRobot recently expanded its partnership with InTouch Health, a small company that enables doctors at computer screens to remotely treat stroke victims and other patients.
And then there is a $775 million acquisition of Kiva Systems by Amazon (Nasdaq: AMZN). Kiva makes self-propelled turtle-like robots that scramble around warehouses to retrieve and carry packages to their proper shipping point.
Since fulfilling orders costs Amazon about $3.5 billion a year, this fresh robotic technology will help increase efficiency and lower costs.
Following the Leader
While iRobot is an intriguing, high risk/high reward story worth watching, let me tell you about Fanuc (FANUF.PK), a Japanese blue chip.
Headquartered in the shadows of Mount Fuji, Fanuc is the world’s leading manufacturer of computerized numerical control devices that are used in machine tools. Its products also serve as the “brains” of industrial robots.
Fanuc, whose name is an acronym for Fuji Automatic Numerical Control, has been a world leader in robotics since the early 1970s. It was founded as a wholly owned subsidiary of Fujitsu in 1955 after the electronics giant decided to enter the factory automation business.
Fanuc offers investors a pristine balance sheet with zero debt and a whopping $7 billion in cash. Profit margins are impressive with a 38% operating margin and a 26.7% net margin for a return on assets of almost 10%. The company is also showing solid top-line growth with its latest quarter showing a 15.8% rise in year-over-year sales.
One key idea to keep in mind is China’s manufacturing wages are rising by 20% per year. Companies will turn to robots to combat the added costs.
To help prepare for future growth, Fanuc is using a joint venture to build a brand-new 37,900-square-meter facility. The new plant will pump out as many as 3,800 sets of robot systems each year.
But what’s really interesting, Fanuc claims to be the world’s only company using robots to build robots. It’s proof that the Jetsons were on to something big. Robots play a larger role than even the show’s creators imagined some 50 years ago.
With Fanuc stock off 20% so far this year, I suggest you dig deeper into this intriguing opportunity.
Fanuc is a high-quality play on an unstoppable trend.