Special Report: Automated Nation: 6 Stocks Profiting From the Robot Takeover

The factory of the future will have only two employees: a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

—Autodesk CEO Carl Bass

Bank tellers, factory workers, grocery store clerks, fast-food workers, toll booth operators, truck drivers... These are just a few of the jobs that have been taken over by robots.

The effects have been most apparent in the manufacturing industry, where productivity has increased, even as jobs have disappeared.

Some 22 million manufacturing jobs were lost globally between 1995 and 2002, even as industrial output soared 30% due to technological advances.

I'm not just talking about the United States, either. Manufacturing jobs in Japan and Germany have been dwindling since 1990. Even manufacturing in China has trended downward since 1996.

Foxconn, the notorious Chinese electronics manufacturer responsible for your iPhone, recently announced that it'd automated away 60,000 jobs in just one of its factories.

One factory has "reduced employee strength from 110,000 to 50,000 thanks to the introduction of robots," a government official triumphantly told the South China Morning Post.

Productivity Employment

Meanwhile, back home, business titans are threatening to cut more jobs if the government raises the minimum wage.

"It's cheaper to buy a $35,000 robotic arm than it is to hire an employee who is inefficient, making $15 an hour bagging French fries," former McDonald's chief executive Ed Rensi told Fox Business.

Of course, automation will occur regardless of whether or not the minimum wage goes up. It's already taking place.

The federal minimum wage, adjusted for inflation, is lower today than it was in 1950. That hasn't stopped Wendy's from automating anyway.

Dave Thomas's burger joint is replacing cashiers with touch-screen kiosks where patrons can order food and pay. One worker at a Chicago Wendy's said the move would eliminate five jobs from the location.

McDonald's has kicked off a machine-ordering pilot, as well. And White Castle has been testing order and check out kiosks for the last two years.

This isn't new.

Automated customer service reps have been answering phones for years. Grocery stores have increased the number of self-checkout aisles. And toll booth operators are being replaced by EZ Pass.

Now the obvious question is: If robots are taking our jobs, how can we make money?

Well, one solution would be to invest in the companies that are making the machines.

That's why we've written this report. These stocks are the ones that have the most to gain from the robot revolution.

These are the companies whose cutting edge technology is making manual labor obsolete...

Manufacturing

Yaskawa Electric (OTS: YASKY)

Japan-based Yaskawa Electric is a global leader in industrial robotics. With a $3.4 billion market cap, Yaskawa controls roughly 20%, or one-fifth, of the world market.

Yaksawa Rx BotIts machines perform such jobs as arc welding, packaging, coating, and assembly.

One of its newest products, the RX Unit Pick Workcell, is a fully automated robotic pharmacy order fulfillment system. It can handle thousands of different kinds of prepackaged medicine for mail-order delivery direct to customers or pharmacies.

It recognizes and identifies thousands of different kinds of medicine bottles, tubes of ointment, small cartons, and odd-shaped plastic containers. It reads each unique National Drug Code (NDC), orients the medication, and identifies a safe labeling zone for adhering a patient label.

This is a good business. Prescription drug fulfillment volume is rapidly increasing.

Some 1.3 billion pre-packaged prescriptions are delivered in the U.S. each year. That represents 30% of the total 4.3 billion medical prescriptions dispensed in 2015.

On the whole, Yaskawa has increased sales in each of the past five years. And net income surged 46% in its most recent fiscal year.

Yaksawa Earnings

Looking forward, Yaskawa has released its Vision 2025 plan, in which the company aims to double its forecast full-year 2015 sales ($3.6 billion) and nearly triple operating income from this year's goal of $305 million.

Retail

NCR Corp. (NYSE: NCR)

NCR Corp. leads the world in self-checkout and electronic point-of-sale technologies.

Products NCR makes include the self-checkout machines in grocery stores, restaurants, and retail outlets, self-service kiosks at airports, and ATM machines.

The average cost of a self checkout machine is $20,000. That's barely more than the average retail wage before payroll taxes, so retailers recover savings in just about a year after purchase.

NCR also offers a vast array of self-service software, including bar code scanners, and check and document imaging for banks. In fact, in recent years, the company has shifted its business model to focus more on software and cloud solutions, which have higher margins.

NCR Growth

NCR is heavily invested in research and development. The company has spent nearly $700 million on R&D in the past three years, and it owns approximately 1,450 patents in the U.S., alone.

Of course, investing so heavily in the future has meant adding on debt. NCR has about $3.25 billion of total liabilities outstanding.

However, its backlog stood at $1.11 billion at the end of 2015, and generated $135 million in operating income for the year.

Net Income from continuing operations in the first quarter of 2016 was $32 million. Full-year 2016 revenue is expected to be $6.25 billion to $6.35 billion, GAAP diluted earnings per share is expected to be $2.25 to $2.35, and free cash flow is expected to be $425 million to $475 million.

NCR Financials

Cars & Trucking

We've seen a lot of disruptive technologies in the past few years — streaming services, mobile apps, and more. But automated vehicles (AVs) will shift tectonics more than anything we've seen recently. This trend is television-big. It's going to transform America.

The driverless car market is expected to be worth $42 billion by 2025. And by 2035, IHS Automotive estimates that 10% of light vehicles sold will be completely driverless.

But long before the average American is being chauffeured around by a robot, self-driving cars will be taking over for trucking and delivery companies.

It's already happening. And for good reason.

There are currently 848,640 drivers employed in the trucking industry — and that's with a labor shortage. Replacing them with automated vehicles (AVs) would not only be cheaper, but safer too.

According to McKinsey & Co., switching to AVs would save the trucking industry $190 billion annually. Furthermore, multiple studies suggest it would reduce trucking accidents by 90%.

No doubt, AVs are the future and there's no shortage of companies working on them.

Google (NASDAQ: GOOG) is perhaps the most prominent name in this fledgling industry. Google's testing fleet of 58 AVs has traveled more than 1.5 million miles throughout the western United States since the company started its program in 2009.

Google also has several patents, including one for a “package delivery platform.”

However, the company is determined to perfect its technology, and build a completely new driving experience before taking its cars public. To this day, there is no time table on when Google's self-driving cars will be made available for retail.

Ford (NYSE: F), Daimler AG (OTC: DDAIY), Audi (OTC: AUDVF) and just about every other major car manufacturer are competing in the space, as well.

At this early stage, it's impossible to tell which company will reach the finish line first, or meet with the most success.

The only sure-fire winner is the trucking industry as a whole.

Indeed, labor is one of trucking’s highest expenses . The supply of qualified drivers is limited, and companies need to offer high wages, pensions, and workers’ compensation to lure candidates.

AVs are also more fuel efficient than traditional cars and trucks. That's just as important because fuel accounts for 30-40% of trucking costs.

These savings are why high upfront cost to transition a fleet, and a major fight from the truckers' union, will fail to stop the industry from evolving.

Self Driving TruckJ.B. Hunt (NASDAQ: JBHT) is the third-biggest trucking company in the country, behind UPS (NYSE: UPS) and FedEx (NYSE: FDX). It controls about 25% of the market, has 10% operating margins, and has 16% expected earnings growth.

At the end of 2015, J.B. Hunt owned 12,500 tractors, 29,247 trailers, 78,986 containers, and 68,076 chassis. The company owned or leased 42 terminal facilities, 89 Final Mile Services cross-dock locations, 34 ICS branch sales offices, and other support locations across the USA, Canada, and Mexico.

Full-year revenue was flat at $6.2 billion, but operating income was up 13% and earnings per share were up 16%.

Electronic parts suppliers will also benefit from the transition to AVs.

According to analysis firm IHS Technology, micro-controller and processor units for AVs will be a half-billion-dollar market by 2020, up 625% from $69 million in 2013.

NXP Semiconductors (NASDAQ: NXPI) is a leader in this field.

About 41% of NXP's overall sales come from the automotive sector today, making NXP is the largest automotive computing player by a wide margin.

In 2015, NXP delivered revenue of $6.1 billion, up 8% from 2014. Full-year non-GAAP operating profit and non-GAAP earnings were both up strongly, as well. Non-GAAP operating income was $1.68 billion, up 19%, non-GAAP earnings per share were $5.60, up 18%, and non-GAAP free cash flow was $996 million.

As we work through 2016, the company is working through a complex merger with Freescale Semiconductor Ltd. Furthermore, geopolitical and economic issues have hurt demand for some of its core products.

That's taken some wind out of NXP's share price, but the company itself is still strong.

NXP

Mobileye (NYSE: MBLY) competes against NXP.

The Israel-based company makes cameras, software, processors, and mapping data for advanced driver assistance systems (ADAS). Mobileye's technology is used specifically for collision avoidance. It senses other vehicles, pedestrians, obstructions, and lanes, and alerts drivers of potential collisions.

Mobileye has also released a mapping service, called Road Experience Management (REM). It collects map data from cars and sends it directly to the cloud for other vehicles to use. REM could help AVs share information with each other, allowing them to react in real-time to changing conditions. That's especially useful in cities, where potholes, road crews, accidents, and other emergency situations can pop up without warning.

ADAS technology is the backbone of the AV industry and, and Mobileye already supplies 90% of the world's top automakers with its cameras and software. Tesla is one of the company's most prominent customers and CEO Elon Musk has already committed to using new versions of Mobileye's tech.

With its leadership position in the ADAS market, Mobileye is growing revenue quickly. In Q1 2016, the company posted revenue of $75.2 million, up nearly 65% year-over-year, and its non-GAAP earnings per share (EPS) was $0.15, up about 87%. Mobileye generated $30.4 million in free cash flow in the quarter.

RBC Capital Markets predicts the company will “experience hyper growth through the end of the decade” with a compound annual growth rate of near 50%. The firm says Mobileye is the “only real ‘pure-play’ for investors looking for ADAS and autonomous driving exposure.”

In the Home

iRobot (NASDAQ: IRBT)

iRobot is the maker of the ubiquitous Roomba self-directed vacuum, which dominates the home robot market.

But that's not all. The company is now moving outside the home. Its new automated lawnmower was just cleared by the FCC. The mower will use transmitters fitted into the ground to navigate the outdoors.

In addition to these two bellwether products, iRobot makes automated floor scrubbers, mops, and pool and gutter cleaners. A little-known fact is that the company also made security robots for the U.S. military. However, it recently sold that division off to Arlington Capital Partners for roughly $45 million.

As a result, iRobot can focus exclusively on home robots, where it generates the bulk of its revenue.

That revenue more than doubled from 2010 to 2015, soaring from $229 million to $560 million. In all, iRobot generated $617 million in revenue last year.

iRobot Earnings

This trend should continue as iRobot dominates this decidedly niche segment with a 90% share of the U.S. market, and more than two-thirds globally. Its nearest competitors absorb less than 10%.

As a result, iRobot is poised for high double-digit growth for years to come, as the home robotics market grows.

Better still, the undisputed market leader is trading for a modest 10x EBITDA with good cash flow and no debt, making it undervalued weighed against its growth potential.

Of course, this is just a small sampling of the robotic technologies that are out there. And more are sure to come as these newer industries take flight.

For now though, these companies are at the cutting edge of automated America.

—Outsider Club Research Team


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