The Robot Report - A Guide to Robotics Investing

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"Pure play" is an investment term that refers to a company which is exclusively focused on a particular product or service. An investor buys stock in pure play companies in order to obtain a market share in the industry as well as in the company.

Robotics, to many, are just a tool to accomplish business tasks in an efficient way. To me, making robots to achieve those goals is an industry in itself and deserving of consideration for investment because of good prospects for the future. Hence the need to find pure play companies in the industry.

For example, iRobot (IRBT:US) and KUKA (KU2:GR) are pure plays while Boeing

(BA:US) and John Deere (DE:US) are not; yet all four companies are involved with

robotics. In the case of Boeing and John Deere, robotics is not their primary business

and represents just a tiny fraction of their operating profits. Boeing designs and

manufactures UAV's for defense agencies and John Deere produces a line of AGV's

including a new robotic lawn mower, and also provides autonomous navigation

modules for tractors; but neither is truly a robotics company.

 

Consequently, if you believe that the robotics industry is ready for you to invest in,

you wouldn't purchase either Boeing or John Deere -- they aren't representative of

the industry and their stocks move to the beat of a different drummer than robotics.

Instead, you would pick from a list of pure play robotic stocks (if such a list existed).

Emerging non-industrial robotics is a global industry stemming from entrepreneurial

and university spin-off activities in the US, Europe, Korea, Japan and more recently,

Taiwan and China. There is no center, although America is leading the pack at

present. Conversely, industrial robotics clusters are located in Germany, Korea and

Japan. America, which started the industry, is no longer its leader.

 

The non-industrial portion of the robotics industry is new and is where all the

venture attention is focused. There are hundreds of start up companies which are not

yet publicly traded... Kiva Systems (which was just acquired for $775 million) being

a prime example. [Rhetorical question: since Amazon acquired Kiva Systems, does

Amazon (AMZN:US) become a publicly traded robotics stock?]

 

Last year an analyst provided a list of 10 robotic stocks. Only four were realistic

picks to watch and one was an outright mistake. This year Robotics Business

Review produced a list of 19 public stocks but included 8 which were certainly not

pure plays: ABB (ABBN:VX), Boeing (BA:US), John Deere (DE:US), Epson

(6724:JP), Honda (7267:JP), Microsoft (MSFT:US), Panasonic (6752:JP) and

Toyota (7203:JP). Each (except ABB which gets 21%) has a 5% or lower

involvement in robotics; two don't manufacture robots at all; most are users of

robots; and none of them are pure plays. Thus, compiling a list of pure play stocks

and picking favorites is complex and rigorous. ABB is a perfect example of the

complexity: they are one of the top global robot manufacturers yet their revenue

from robotics represents just 21% of their overall business because ABB also builds

power and control systems (generators, turbines, etc.).

 

For three and a half years I have tracked and compiled a global and growing list of

publicly-traded stocks involved in the robotics industry, stocks which are listed on

reputable exchanges require regular, audited financial disclosure. I've separated them

into three groups: industrial, service (which includes defense and space, medical and

everything else non-industrial) and ancillary (which covers integrators, consulting

firms, component suppliers, vision systems and software providers). I've

individually weighted each stock by its closeness to being a pure robotic play based

on their financial records and websites and have built the top 100 into an index

which I call Robo-Stox™. Each month I've produced a chart of the Robo-Stox™

index showing month-to-month and year-to-date changes and each year I've created

a chart showing how the stocks performed over the years since their 2007 highs.

Globally, there are slightly more than 250 publicly-traded robot manufacturers with

varying levels of other business activities within the company. Here are some

interesting robotic stocks to whet your appetite:

 

Healthcare Applications:

●Intuitive Surgical (ISRG:US) and its da Vinci Robotic Surgical System are

being installed at major hospital operating centers worldwide. Its stock has

risen over $200 in the last 12 months! Intuitive Surgical has more than 870

U.S. and foreign patents as well as more than 990 pending.

●Mako Surgical (MAKO:US) has an interactive robotic arm orthopedic system

for knee implants.

●Accuray (ARAY:US) and its CyberKnife Robotic Radiosurgery System is an

up-and-coming robotic radiation treatment system.

●Swisslog (SLOG:SW) makes warehouse automation devices as well as

hospital logistics and drug management solutions using mobile robots.

●Mazor Robotics (MZOR:IL), an Israeli company, provides state-of-the-art

robotic surgical guidance systems.

 

Defense, Security and Space Applications*:

●AeroVironment (AVAV:US) is a provider of unmanned aircraft, systems and

services and 85% of their revenue comes from UAS (unmanned aerial

systems) sales. They regularly get DoD orders for their Raven and Wasp

small unmanned aircraft systems and just got three orders totaling $28.4

million for production of their Puma drone.

●iRobot (IRBT:US), a 100% pure play robotics company, just had a 33% drop

in their stock price because of reduced government contracts. They have

recently restructured to add healthcare to their lineup of products, consumer

products are doing fine, and the company is fishing for additional consumer

robotic products.

●QinetiQ (QQ/:LN) is iRobot's direct competitor in the defense robotics

marketplace despite their being a British company and not a pure play stock.

* Many of the major providers in Defense, Security and Space do have robotics subsidiaries but are conglomerates where only a very small portion of their revenue is derived from robotics, hence they are not listed here. Examples of this type of company include: Northrup Grumman, Rockwell Automation, General Dynamics, Boeing, Teledyne, Textron and Canadian MacDonald Dettwiler.

 

Industrial and Co-robot Applications:

●Adept Technology (ADEP:US) is one of the very few industrial robot

manufacturers based in the U.S. Most of it's revenue from robotics comes

from manufacturing, food processing, automotive and warehousing

applications. With their recent acquisition of Mobile Robotics, and after

strengthening and modularizing their mobile acquisition,the company began

to enter the service robotics sector.

●Two privately held companies, Universal Robotics, a Danish company and

c-Link Systems, from the US, along with two publicly-traded companies

KUKA (KU2:GR) and ABB (ABBN:VX), have released lightweight,

economical, safe, robotic arms for light industrial and SME work.

●KUKA (KU2:GR) has been getting a lot of press for their increasing

involvement in China, too. All these companies (KUKA, ABB, FANUC,

Adept, Yaskawa Electric (Motoman)) hope to do well in China as China

automates its automotive and other industries. But KUKA and the other

non-Chinese companies may have problems further down the road when

China's in-country technology machine takes over.

●ABB (ABBN:VX) has for many years been active in China and, until

Foxconn announced that they would be manufacturing their own robots, ABB

was rumored to be the leading contender to get the job. ABB stock comes

with the caveat that robotics represents only 21% of their corporate revenue.

●Yaskawa Electric (Motoman) (6506:JP) is similar to ABB in that the

company is well respected as a robot manufacturer yet robotics represents

only 30% of revenues. They recently announced building plans for a robot

factory in China.

●FANUC (6954:JP) recently completed construction of an additional factory

in Japan to handle sales to China.

●Foxconn, is an example of how the industry may shift to China and cut out

foreign competitors. Hon Hai Precision (2317:TW), a holding company for

Foxconn and a buyer of 10,000 industrial robots from a variety of vendors, is

one of China's largest manufacturers, employing over 1 million workers in

China alone. Foxconn is planning to make and install their own robots with

an ambitious plan to install 1 million robots within 3 years! And then they'll

begin selling robots to others!

 

Ancillary businesses to the robotics industry:

●Trimble (NASDAQ:TRMB) provides advanced positioning product solutions

and component parts as does Hemisphere GPS (TSE:HEM Toronto Stock

Exchange) in Canada, particularly for the ag industry. Trimble's recent

acquisition of Gatewing, a Belgium provider of a 4-1/2 pound unmanned

aircraft and software specialized for surveying and mapping, provides a

complementary subsidiary for Trimble. "We’re looking at the acquisition of

Gatewing as the start of a center of excellence that will broaden into a product

line, rather than a single product.”

●FARO Technologies (NASDAQ:FARO) provides 3D measurement and

inspection arms and scanners.

●Cognex (NASDAQ:CGNX) is a provider of machine vision products

primarily used in robotic applications.

●Allied Motion Technologies (AMOT:US) makes the servos that are

incorporated in the da Vinci surgical and other robotic systems.

 

Recently I've come across a couple of dubious stocks that I have questions about and

think need watching: QUAN and ALF. Neither is traded on an exchange which

requires financial reporting, and from what I can tell by the information on the

Internet, they both appear to be set up so that if you buy their stock, they get the

money - in effect, they are the seller. That is not the usual way we think of stock

trading but it appears to be the way they are both operating.

 

Artificial Life Source Holding, PLC, (ALF:GR) on the Frankfurt Stock Exchange,

has parlayed a set of human-robot communication software routines which were

developed by their CEO into a niche company with polished marketing materials.

Their robotic products consist of the original software and a $10,500 teddy bear that

talks, has facial expressions and arm movements. In videos, the little bears are used

to teach elementary language and spelling to children. The CEO says he has an order

for 10,000 robots. That's a $105 million transaction but he also said he hasn't yet

finalized the product, the production methods, the engineering, the software or the

choice of vendor(s). Yet the company has a publicly-traded stock. Interestingly, the

market value of the company is given as the sum of the shares sold times the current

price of the stock.

 

Further investigation has shown that for ALF, the Frankfurt Stock Exchange has the

following disclaimer:

The shares of this company are neither admitted to trading on the Regulated Market

nor included in trading on the Regulated Market. They are included in trading in the

Open Market (Regulated Unofficial Market) of FWB Frankfurter Wertpapierbörse

(the Frankfurt Stock Exchange). Investors must be aware of the fact that the Open

Market (Regulated Unofficial Market) on the Frankfurt Stock Exchange is not

subject to the high Europe-wide transparency standards and strict provisions for

investor protection on EU-regulated markets.

 

Quantum International Corp, (QUAN:US) in the Pink Sheets, an exchange which

doesn't require any financial disclosure or regular reporting to be listed, appears to be

promoting itself to investors as a venture company specializing in robotics. Their

website is full of information about why robotics are a good investment but their

suggestion seems to be that you invest with them and they will act as a venture

capitalist on your behalf.

 

Their new CEO recently moved from being the CEO of an energy company which

shut down. That company's stock was renamed from First Titan Corp. to Quantum

International Corp. Thus both the old stock and its CEO appear to be trying their

luck in robotics just as they did in the development of oil and gas exploration.

 

 

About The Author: Frank Tobe is the owner and publisher of The Robot Report. After selling his business and retiring from 25+ years as consultant to the DNC and major presidential, senatorial, congressional, mayoral campaigns and initiatives all across the U.S., Canada and internationally, he has energetically pursued a new career in researching and investing in robotics.

 

“Early in 2008, in a personal effort to learn about the robotics industry and the future of robotics, with an eye toward selectively investing in publicly-traded and privately owned robotics businesses, I began an intensive research project that took me to Japan, Korea, Germany and all over the Internet. My eyesight has suffered but not my mind. I love what I’m doing and finding out and, in an effort to share my research, I set up this website, The Robot Report, to track the business of robotics. Early in 2009 I set up the Everything-Robotic blog to supplement The Robot Report with periodic in-depth personal insights.”

 

For more information, see www.therobotreport.com

 

 

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