Six years after the big crash, the global economy still seems
pretty shaky and could even be set for another meltdown, if some
of today's headlines are to be believed. Nevertheless, many
enticing investment opportunities still abound -- like robotics
and automation, or R&A.
While R&A has been on the rise for decades, exciting
advances have been occurring recently. For instance, the creation
of physical objects from a digital file, the amazing
manufacturing process known as 3-D printing, has improved so much
it can be used to make nearly anything from footwear and
firearms. Apparently, you can even print out a pizza now.
R&A has been playing an ever-larger role in other areas,
too, like medicine. For instance, robots are being developed to
perform blood draws and other routine medical tasks, as well as
more complex ones such as cardiovascular surgery. Increasingly
capable robots are already common on assembly lines and in the
Most investors have heard about how some big companies such as
are developing robots and/or snapping up promising robot
manufacturers. Apple, for instance, is creating robots to help
build iPhones and other devices. Google has gotten attention
recently for buying eight R&A companies and for making
inroads into artificial intelligence with a prototype car that
uses lasers and mapping software to drive itself.
Meanwhile, Amazon is waiting for the FAA to finalize rules
permitting the use of radio-controlled drones for commercial
purposes sometime next year. This would enable the firm to
proceed with plans to offer Amazon Prime Air, in which packages
of 5 pounds or less would be delivered by drones up to 10 miles
within 30 minutes of an order being placed.
According to Transparency Market Research, R&A was already
nearly a $6.3 billion industry in 2012 and could surpass $12
billion in 2019. What's more, some of the smaller pure-play
stocks in the industry have already delivered very nice
iRobot Corp. (Nasdaq:
, a manufacturer of practical robots for consumers, governments,
and business. The firm, which launched its flagship product (the
Roomba automated vacuum cleaner) in 2002, jumped more than 245%
during the past five years. In that time, robotic surgical
Intuitive Surgical (Nasdaq:
more than doubled, while the well-known R&A stock
3D Systems (NYSE:
With rapid growth of R&A expected to continue, there's
still more money to be made from the industry. However, I don't
think individual stocks are generally the best way to go in this
Often, R&A stocks have nosebleed earnings multiples, even
relative to projected growth, and shares can be terribly
volatile. Plus, investors have probably made much of the 'easy
money' available on many of these stocks, so forecasting the
direction of individual stock prices is tough.
Many consumer's are already familiar with
iRobot's line of automated vacuum cleaners.
But I think the overall industry is set to climb much higher
over time, and a great way to ride the trend is with
Robo-Stox Global Robotics & Automation (NYSE:
. This $106 million exchange-traded fund (
) has virtually every R&A stock you could want, including
IRBT, ISRG and DDD. Indeed, ROBO is divided among 82 R&A
firms of various sizes, including some larger, well-established
names that are recognized for other technologies but have been
ramping up R&A capabilities.
One example: venerable defense contractor
, which occupies 1% of fund assets. NOC has been making unmanned
drones for some time and just launched the versatile Cutlass
unmanned ground vehicle. Farm/lawn & garden equipment maker
Deere & Co. (NYSE:
, another 1% position in the fund (
and a favorite of Bill Gates
, as my colleague Marshall Hargrave noted recently), has a
robotic lawn mower.
Since much of the R&A revolution has been taking place
overseas, it's no surprise that 62% of ROBO is in foreign stocks.
Japan in particular is an R&A leader, which is why four of
ROBO's top 10 holdings are Japanese companies.
Robo-Stox Global Robotics & Automation, Top 10
Although not obvious from its name, ROBO is an index fund. It
tracks the Robo-Stox Global Robotics & Automation Index
maintained by S&P Opco, an S&P Dow Jones Indices
The index is usually 40% "bellwether" stocks -- those the
index committee deems representative the R&A industry (such
as ROBO's top 10 holdings). The remaining 60% of the index is
"non-bellwether" stocks of firms that devote a distinct portion
of their business to R&A (like Northrop-Grumman and Deere)
and should see higher revenues as a result.
To achieve those proportions, the bellwether stocks each
receive about a 2% weighting in the fund, compared with about 1%
for non-bellwether holdings.
Despite their R&A presence, Google, Amazon and Apple
aren't in the index, presumably because R&A is still such a
tiny portion of their businesses. However, it's easy to imagine
all three making the roster at some point if they expand their
R&A activities enough.
While R&A isn't a new industry, ROBO is a new fund, having
only started trading last October. (And there are no other
broad-based funds like it that I'm aware of.) The fund's expense
ratio of 0.95% is a bit high for an ETF that tracks an index, but
I don't consider this a deal-breaker in light of the component
stocks' growth potential.
Risks to Consider:
Although R&A has become a multi-billion-dollar industry,
there's no guarantee it will continue to expand as projected or
that broad exposure to it through a fund like ROBO will generate
Action to Take -->
R&A is growing fast, and that could mean big profits for
investors, but the industry is still very speculative and fraught
with high stock valuations. Therefore, a diversified approach is
probably preferable for most portfolios, and the Robo-Stox Global
Robotics & Automation ETF fits this bill perfectly.
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