According to Allied Market Research, by 2020 the global robotics market will reach $82.7 billion, ballooning at a 10% compound rate.
That mammoth grow is being fueled by tech stalwarts like Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOGL).
My most recent interest in robotics was piqued by a seemingly minor acquisition that Teradyne Inc. (NYSE: TER) just made.
In a time of near-weekly multibillion-dollar deals, Teradyne’s acquisition of a Danish robotics firm for $285 million sounds like small potatoes. But take a look at what that robotics firm is doing:
For Universal Robots, the firm Teradyne bought, sales grew last year by some 70%. And since late 2010, the firm has sold more than 4,000 robots worldwide, increasing sales by 10-fold in the process.
I’ve found a way for us to reap excellent long-term profits from this unstoppable trend – but at a fraction of the cost of any of those giant firms…
Apple-bots, Google-bots, Amazon-bots
Universal Robots is a great fit for Teradyne, a mid-cap leader in equipment used to test semiconductors, wireless products, data storage and complex electronic systems.
Teradyne had sales last year of $1.65 billion and is looking for ways to grow revenues as it adds new efficiencies.
Universal Robots could play a huge role in that effort. The company makes a range of robotic arms used in the automotive, machining and pharmaceutical sectors.
More to the point, the rapidly growing firm is pushing the boundaries of a sector known as “collaborative robots,” so-called because humans can easily work alongside them.
Also known as “cobots,” these machines are on the verge of massive widespread adoption. Teradyne estimates the market will grow by some 35% a year over the next decade.
That makes the cobot sector one of the fastest-growing segments of the robotics industry, which is itself doubling in size roughly every 10 years.
Allied Market Research notes that robots are being used in a wide range of industries. For instance, auto assembly takes top market share and accounts for roughly 39% of sales growth, followed by electronics with 20%.
Rising labor costs and a shortage of skilled workers are two key factors behind the robotics’ broad growth, Allied’s report notes.
Just look at Amazon.com, where robots play a big role in the firm’s rapid delivery system. Three years ago, the online retailer paid $775 million for Kiva Systems, makers of warehouse handling robots.
And Apple also is benefitting from the growth in robotics technology, albeit behind the scenes.
Foxconn Technology Co. Ltd. assembles Apple products in Asia. Foxconn wants to add as many as 1 million robots at its factories and has already fielded an army of 50,000 machines.
Then there’s Google. In robotics, the company is best known for its driverless cars.
Besides that, though, Google has been on a robotic acquisition tear, buying up at least seven firms in the space in recent years. In late 2013, it bought Boston Dynamics, a pioneer in the field known for its four-legged “packbots” that can carry heavy supplies.
The ROBO Solution
With so much going on in robotics, tech investors ought to consider the Robo-Stox Global Robotics & Automation ETF (Nasdaq: ROBO).
With roughly 80 stocks in its portfolio, the exchange-traded fund (ETF) covers just about every conceivable robotics angle.
Let’s start with iRobot Corp. (Nasdaq: IRBT). Founded in 1990, it’s one of the industry’s early entrants. In recent years, the company has moved into video robots for the corporate market, with a line of wheeled machines that hold video monitors.
The company also supplies the military with a line of tracked robots that measure as small as 5 pounds and go up to 330 pounds. And in the consumer market, iRobot sells robots that vacuum carpets and scrub floors.
FANUC Ltd. (OTC: FANUF) is a sprawling Japanese company that operates a U.S. robotics subsidiary. The firm’s robots paint, spot weld and package – the company also supplies factory automation equipment.
So, ROBO is clearly rooted in the hardware that defines the conventional robotics industry. But one of the things I like about this ETF is that it doesn’t limit itself to just machines.
For instance, ROBO has an interest in Nuance Communications Inc. (Nasdaq: NUAN), a firm that specializes in voice-recognition and imaging technology. It boasts some 4,000 patents and services a dozen industries, including mobile, automotive, legal and medical.
Drones Are Robots, Too
Unmanned aerial vehicles, also known as “drones,” also play a role in the ROBO portfolio. As such, it holds stakes in two key suppliers of drone technology to the U.S. military.
AeroVironment Inc. (Nasdaq: AVAV) makes a line of smaller drones that members of the armed forces can quickly assemble and throw into the air for combat surveillance. It also markets a drone that looks and flies like a hummingbird that could eventually be fielded in urban locales.
As you might expect from a sprawling defense contractor, Northrop Grumman Corp. (NYSE: NOC) is focused on larger military drones, including fixed-wing aircraft and helicopters. Northrop also supplies the Global Hawk, an intelligence-gathering drone that can stay aloft for more than 30 hours at a time.
ROBO has a stake in the growing use of surgical robots as well. It holds Accuray Inc. (Nasdaq: ARAY), a small cap that also makes 3D-guided radiation therapy machines, and Intuitive Surgical Inc. (Nasdaq: ISRG), known for its sophisticated da Vinci Surgical System.
Launched only in late November 2013, ROBO is a relatively new fund and was the first ETF to focus on automation and robotics. To mark the occasion, Nasdaq officials allowed a robotic arm to ring the closing bell.
Priced at just $27, it trades at a fraction of some of its notable portfolio holdings. And Wall Street is starting to wake up to the value that a balanced robotics play like ROBO represents.
Over the past three months, ROBO has gained 2.4%, or nearly triple the Standard & Poor’s 500 Index’s return of 0.9% in the period.
But this is a fund that’s just getting started, so its best days are yet to come.
ROBO is an ETF that offers patient tech investors excellent long-term potential – and would make a great foundational play for your portfolio.
[Editor’s Note: What do you think about robotics? A boon to investors or a threat to our jobs? Let us know by posting a comment below. Michael loves hearing from you and answering your questions.]