Invest In Robots, And Get On Their Good Side While There's Still Time

by: John Morgan

Message to investors who have been waiting on robotics to represent an authentic industry before putting money into it: you may have some catching up to do now.

Thankfully, there appears to be no shortage of ground floors to get in on when prospecting for the stocks of suddenly profitable robot and related artificial intelligence (NYSE:AI) companies.

There appears little disagreement that robots and their AI brethren are taking the jobs of humans. From the accelerating loss of manufacturing jobs to robots, to the impending loss of delivery driver (hello, Amazon drones), fast-food drive-through worker and even accounting & lawyer positions, robots are clearly on the march.

Google's new head of engineering looks forward to the day - apparently not long from now -- when a computer will exhibit intelligent behavior that is indistinguishable from that of a human.

Whether that's a good thing or a cause for alarm, robots are investable now.

According to the International Federation of Robotics, 2.47 million industrial robots had been shipped worldwide by the end of 2012. The worldwide market value of robot systems was $26 billion, not including peripherals.

Some of the companies deeply involved in robotics and its attendant AI efforts, like Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL), are far from pure plays and too diverse to consider buying only to get equity exposure to robotics.

An interesting possibility is posed by the new Robo-Stox Global Robotics and Automation Index ETF (NASDAQ:ROBO), a passively managed fund that tracks global companies with a significant portion of their revenues derived from robotics or automation-related products or services.

ROBO is currently the only pure play ETF for investors to get such targeted exposure to the nascent industry.

With a 0.95% expense ratio, ROBO is not cheap on cost but does sport some attractive characteristics - historic earnings growth of $29.6% and a 13-week cumulative return of 6.4% vs. 3.83% for the S&P 500 during the same period.

This ETF, which launched last October, contains 71 companies, so it has the benefit of spreading performance risk around widely within the industry. The robotics industry not only has a strong growth story, but may also benefit from a growing deployment of investment capital by cash-rich tech companies if the economy continues to power up.

The stocks include companies that make industrial robots, government and service industry robots, undersea robot and robots for personal use such as the vacuums and floor cleaners made by iRobot.

The components also include component manufacturers, vision system providers, healthcare data gatherers and 3-D printer makers.

Over 30 of the ROBO component stocks are foreign, though, including 17 Japanese companies. If foreign exposure, with its currency and political and tax risk simply does not appeal, there is still a way to get diverse exposure to the industry by buying a basket of domestic robotics and related automation stocks.

Under this scenario, for instance, an investor with $10,500 to spare could buy $1,500 each in shares of iRobot (NASDAQ:IRBT), Intuitive Surgical (NASDAQ:ISRG), Rockwell Automation (NYSE:ROK), Cognex (NASDAQ:CGNX), Oceaneering (NYSE:OII), Immersion Corp. (NASDAQ:IMMR) and Trimble Navigation (NASDAQ:TRMB).

These seven stocks are liquid, with average daily volume of 961,00 shares, profitable with demonstrated EPS and revenue growth, an average P/E ratio of 23.8, institutional sponsorship averaging 82%, and an average market cap of $7.9 billion.

These seven have produced 52-week price gains of: +114% IRBT; -24% ISRG; +32% ROK; +81% CGNX; +10% OII; +74% IMMR; and +30% TRMB.

Whether the increasingly smart and more numerous robots and their AI kin are ultimately a force for good or ill in human society, for the time being they must report to stockholders.

And clearly, even if they should somehow take over the world someday, those who invest in robotics stocks now with a buy-and-hold strategy will be able to say they've been their allies all along.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.