When it comes to moving packages, FedEx Corp. (FDX) isn’t willing to stay stuck in the 20th century.
Their largest shipping hub is a marvel of modern robotics. Every day, it takes in 1.4 million parcels, and, with automation technology, can have each one of them ready to ship out again in only 15 minutes.
This cutting-edge facility is even capable of sorting out half a million packages in just one hour. It’s that technology that makes FedEx willing to offer shipping between New York City and Los Angeles in less than 24 hours.
That’s a distance of nearly 2,500 miles covered in just one night. Back during the mid-1800s, it took ten days to send a message by Pony Express over a shorter route.
But this high-tech miracle doesn’t plan on stopping with FedEx. The same robotics technology that makes this possible is coming right to American homes.
No wonder the sector is on pace to have a value of $158 billion.
I’ve identified a small-cap leader that is a great pure play on this growing field.
At the Center of Things
Now then, I had a front-row seat at the dawn of industrial robots here in the U.S.
That was in the early 1980s when I was an award-winning reporter at the Detroit News, then the nation’s sixth-largest daily.
I actually went on several factory tours to watch robots being used to help paint cars and perform quality-control checks. It was the advent of robotics that helped US carmakers compete with the flood of Japanese vehicles.
Since that time, we’ve seen continued advancing in the field as computer processing power improved and software also became more robust.
Today, research firm Mordor Intelligence forecasts that the field of robotics will grow by 25.4% a year, all the way through 2025. That means robotics sales would double twice, reaching about $158 billion by the end of that period.
If you ask me, that’s a conservative estimate. To see why, take a look at FedEx Corp. (FDX) and their WorldHub facility in Memphis. To cope with the surge in demand amid the Covid pandemic while protecting its workers from infection, FedEx recently installed four state-of-the-art robots in the facility.
Each robot there has arms that can mimic human movements and works eight hours a day sorting about 1,300 packages an hour from bins onto a conveyor belt.
The robots come equipped with advanced cameras that, much like new smartphones, provides depth perception, while their “brains” come loaded with machine learning and AI so that they learn on the job and can adapt to unforeseen situations.
The Personal Angle
Something very similar is happening inside America’s homes right now.
Which brings us to iRobot Corp. (IRBT), the world leader in robots for consumers, and one of the most experienced firms in the field anywhere in the world. In fact, over the last 30 years, the company has sold 30 million robots.
If the firm’s name rings a bell, it’s probably because of its robotic vacuum cleaner, or RVC – better known as Roomba. These low-profile, automated vacuum cleaners quietly buzz around the house, sucking up dust and dirt, without the people having to lift a finger.
Sophisticated AI uses upwards-facing cameras as well as motion sensors to map the house’s layout, figure out how to best vacuum it, and how to get back to the charging station. Newer models even “deposit” what they’ve sucked up at this charging station, so they can go longer without being emptied.
Maybe most importantly, the AI is smart enough to figure out where not to go – crucial in order for consumers to trust it enough to leave it alone.
These Roomba’s are so beloved that many people name them, assign them a gender, or even think of them as quirky pets.
It’s an illustration of just how much profit potential there is in tech that goes on to become a key part of people’s everyday lives. For another example, one can look at Shopify Inc. (SHOP).
The play on e-commerce, another one of today’s unstoppable trends just like robotics, paid its earliest investors back with gains of over 500,000%. The thing is, these were the absolute earliest angel investors.
I’m talking about people who bought in before the company even went public. Now, if you’re interested in getting on board this early with the newest breakthroughs that could end up in every household, just click here.
The Automated Household
But iRobot has long since expanded beyond just the Roombas. The firm also sells the Braava robot mops, the Terra robot lawnmowers, and even the Root robots that teach kids how to code computer programs.
For the robotic vacuum cleaners alone, iRobot estimates its immediate addressable market was worth $11 billion in 2019 – more than double the 2012 number. I’d say that’s conservative, as the technology continues to improve, making it an even easier sell.
Take the company’s connected robot AI and home integration features, for example. These allow owners to connect their Roomba vacuums and Braava mops to their home WiFi and control them from their smartphones, set up a cleaning schedule, and get instant alerts if there’s a problem or it’s time to empty the unit.
Once they’re connected, the firm’s robots can even be voice-controlled using Alexa or Google Assistant. Newer models can even be told to clean specific rooms and schedule their cleaning on a room-by-room basis.
The latest Roomba and Braava models can even communicate with each other to make sure the Braava only mops parts of the floor that the Roomba has already vacuumed.
iRobot’s innovation shows up in the firm’s earnings reports, too. In the third quarter of 2020, iRobot reported a 72% jump in earnings, while sales grew by 43%.
Having gone over the firm’s financials, I project per-share profit growth of 24% a year. At that rate, iRobot’s profits should double in right at three years.
With a stock like this one, it’s almost like automating your wealth as well as your housecleaning.
Cheers and good investing,
Michael A. Robinson