Article by Investment U
Investors looking to invest in robotics and minimize risk should look to FANUC (PINK: FANUY), a Japanese robotics company with two trends on its side.
In the futuristic hit television series The Jetsons, launched in 1962, the goal of the creators was to imagine what life would be like a century later – in 2062.
Fifty years later, and many of the gadgets in the show are still creations of cartoon sci-fi. Surely, George Jetson’s “space car” – which folds up neatly into a briefcase – would save millions in parking garage fees for urban commuters. And we don’t take a “food pill” for dinner, as George, Elroy, Judy and wife Jane did on occasion.
But the Jetsons did have a robot maid named Rosie. And in that area, our sci-fi present may finally be catching up with our sci-fi future…
Danger, Will Robinson?
Take Amazon’s (Nasdaq: AMZN) recent $775-million acquisition of Kiva Systems. Kiva makes self-propelled turtle-like robots designed for use in warehouse “picking” operations. For some context, keep in mind that Amazon’s human-based warehouse fulfillment operations cost $3.5 billion a year. Amazon’s purchase demonstrates that mobile robots (automakers have used robotic floor-mounted welding systems for years) are no longer research projects – they’re capital investments.
Robots are also lifesavers. The U.S. Army and the Marines recently ordered 1,200 “micro robots” from a private firm, ReconRobotics, for use in high-risk tactical operations. The devices, equipped with infrared cameras and batteries, weigh a little over one pound and can be physically tossed into a room, like a grenade, and maneuvered by remote control so soldiers can see what’s on the other side of a darkened entryway.
By Pentagon terms, the order is tiny – a total of $15 million. But then again, so were orders for UAVs (unmanned aerial vehicles) like the Predator years ago, until the military grasped the value of the drone aircraft.
Boston’s iRobot (Nasdaq: IRBT) is another story worth watching. The company went public seven years ago, and already sells millions of those disc-shaped Roomba vacuum cleaners to consumers and thousands of PackBot bomb-disposal units to the Pentagon.
But this year, the company restructured its business units because it sees rapid growth for robots in other markets.
Its latest creation is “Ava,” a five-foot three-wheeled automaton with an iPad tablet for a brain and Xbox motion sensors. iRobot developed the device as a platform for a myriad of business uses. Building security is one possibility. So is healthcare. The company is testing Ava’s use as a robotic “physician’s assistant.” iRobot’s CEO recently said the company will even pilot test Ava as a “shopping assistant” in retail store environments.
iRobot’s strategy has potentially high rewards. But it also has high risk if the company can’t execute on its strategy.
WALL-E World
On the other hand, there’s another lesser-known robotics company with more promise and less risk: FANUC (PINK: FANUY), a Japanese blue chip with zero debt plus a cash stockpile of $7 billion.
Headquartered in the shadow of Mount Fuji, FANUC (pronounced FAN-uk) is the world’s leading manufacturer of computerized numerical control (CNC) devices, used in machine tools and as the “brains” of industrial robots.
FANUC, whose name is an acronym for Fuji Automatic Numerical Control, is 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 impressive profit margins (42% operating, 26.7% net). The company’s profits dropped during the 2008 to 2009 recession, but rebounded; the last nine-month earnings report showed an earnings gain of 22%, a 23% jump in sales and solid top line revenue growth of 15.8%. The stock is up 15% so far this year.
Looking ahead, I see two trends that will boost FANUC:
- Robust demand from China. Wage inflation is growing at a 20% annual clip. Manufacturers there, like everywhere else, see robots as a way to help keep a lid on wage pressures and increase factory productivity. FANUC’s China subsidiary just built a new $16.8-million plant in Shanghai to meet this need, and expects to reap annual sales of $150 million.
- A weakening Japanese yen (down 6.6% so far in 2012) will boost FANUC’s exports. FANUC does most of its manufacturing in Japan. And the company hopes to raise its price competitiveness by concentrating even more of its production in its home country. To that end, FANUC recently said it’ll build a new factory near Tokyo to double its domestic output capacity of machine tools used in the manufacture of smartphones.
Keep in mind that FANUC, although it’s a Japanese blue-chip company with a $40-billion market cap – trades on the pink sheets.
This is quite common for established foreign companies these days (Rolls-Royce, Nestle and the Swiss pharmaceutical giant Roche are three prominent examples) wanting exposure to U.S. capital markets – but not the bureaucratic hassles and expense of listing on the Nasdaq or NYSE.
That said, FANUC’s unsponsored ADR pink sheet listing, FANUY, trades around 100,000 shares a day (with occasional spikes of four or five times that amount). It’s not a stock to trade short term. So if you’re going to buy shares, use care in building a position and be prepared to hold it as the robotics revolution rolls on.
Good Investing,
Carl Delfeld
Article by Investment U
