Without a doubt, the robotics industry represents one of the most intriguing opportunities for investors to capitalize on cutting-edge technology. But with so many separate visions of what robots can accomplish, investors need to focus on companies that have not only adequate resources for research and development, but also the production know-how to bring their creations to fruition, solve real-life problems, and create shareholder value in the process.
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In my opinion, then, here are the three best stocks for investing in robots today.
First is iRobot, which is best known for its Roomba line of robotic vacuums. And that's fair enough; Roomba currently generates around 85% of iRobot's annual revenue. Another 5% comes from additional home robots, including its Braava floor-sweeping bots, Scooba floor-scrubbing models, and Mirra and Looj robots for cleaning pools and gutters, respectively. This year in the U.S., iRobot expects Roomba to lead the way for Home Robot sales to grow in the mid-teen-percent range, though macroeconomic pressures will probably hold back international growth in the near future.
Meanwhile, iRobot's Defense and Security segment makes up the bulk of its remaining revenue. Incidentally, D&S is also expected to return to modest growth this year for the first time since 2011, when it began to suffer amid unpredictable government spending. Under this segment, iRobot markets a variety of models aimed at military, police, and local government clients, most notably including its popular PackBot robots used for tasks ranging from bomb disposal to remote reconnaissance.
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Perhaps most important in these early stages is that iRobot regularly aims to invest12% of its annual revenue on R&D. Based on iRobot's 2014 sales of nearly $557 million, that means iRobot spent nearly $67 million last year alone on advancing robotics technology. iRobot has promised in 2015 that it will begin monetizing investments in new technologies such as visual navigation, secure tablet interfaces, and cloud integration to bolster robots' mapping and object manipulation abilities. In addition, recent documents from the U.S. Federal Communications Commission revealed that iRobot is in the early stages of building a robotic lawn mower.
I don't know about you, but I look forward to continuing to hold my shares of iRobot as each of these new developments rolls out in the coming years.
Next, it's no mystery that Google's ambitions extend beyond the scope of its namesake search engine. But in late 2013, Google used its massive cash hoard to acquire eight robotics companies in less than six months. Those companies ranged from Schaft and Boston Dynamics, both of which make incredible balancing humanoid robots, to truck-loading robot specialist Industrial Perception, and robotic-arm maker Redwood Robotics.
Google acquired Boston Dynamics, maker of the Atlas humanoid robot, Credit: Google.
As it turns out, Google has already acknowledged that these purchases are for one of its "moonshot" initiatives. In this case, its vision is for creating next-gen robots to automate package delivery from Google's incredible self-driving cars.
At the same time, investors shouldn't expect a package-toting Google robot to knock on your door anytime soon. In a New York Times interview shortly after the acquisitions, Google executive and lead engineer Andy Rubin stated: "Like any moonshot, you have to think of time as a factor. We need enough runway and a 10-year vision."
In the meantime, investors can take solace knowing Google rakes in boatloads of cash thanks to its status as the undisputed Internet search leader in most parts of the world.
3. Intuitive Surgical
Finally, Intuitive Surgical represents another compelling option to invest in robots. Or, more specifically, robotic surgery.
Intuitive struggled early last year with slow sales of its da Vinci robot systems, as hospitals tightened their purse strings amid the implementation of the Affordable Care Act. And procedure counts -- from which Intuitive benefits through the sales of related surgical instruments -- were also under pressure domestically from a modest decline in core procedures like benign hysterectomies.
The new and improved arm of Intuitive Surgical's da Vinci Xi system, Credit: Intuitive Surgical.
That said -- and keeping in mind these high-priced systems often require long sales cycles for placement -- Intuitive Surgical has also enjoyed accelerating demand for its new da Vinci Xi platform. The da Vinci Xi firstreceived FDA clearancein the U.S. almost exactly one year ago, followed by a CE Mark this past June to make it available in Europe (and any other countries that require CE Mark compliance). After selling 50 and 57 da Vinci Xi units in the second and third quarters of last year, respectively, Intuitive Surgical closed 2014 by moving another 97 systems in the fourth quarter.
Finally, by the end of 2015, Intuitive Surgical also plans to build prototypes of another system called the da Vinci SP, which will be compatible with the da Vinci Xi and focused on expanding its offerings relative to single-port procedures.
Given all these catalysts, I can't blame Intuitive Surgical for approving another $1 billion share-repurchase program in February, which it can easily cover with the $2.5 billion in cash it held on its balance sheet. For perspective, that's up from $2.3 billion in the same year-ago period, bolstered by Intuitive's healthy cash flow from operations even after a similar repurchase of $1 billion in shares in 2014.
In the end, as Intuitive Surgical's long-term thesis plays out, that's why I'm convinced that patient investors in this robotics stock stand to be rewarded handsomely.
The article 3 Best Stocks for Investing in Robots originally appeared on Fool.com.
Steve Symington owns shares of iRobot. The Motley Fool recommends Google (A shares), Google (C shares), Intuitive Surgical, and iRobot. The Motley Fool owns shares of Google (A shares), Google (C shares), and iRobot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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