“Greetings from snowy Helsinki. Thanks for highlighting the robotics theme, its potential has been mentioned by FM several times over the last year or so. Only recently I have started to see the sector mentioned in the general (financial) media. I was wondering, is the rise of robotics something that you might consider a new Fullermoney theme? Or is there some missing ingredient that puts you off? I'm just curious because the sector certainly got me excited. Also, may I ask you to add Kuka AG to the chart library please? As a disclaimer, I have small longs in several companies involved in the field and am thinking of buying more. As always, your thoughts would be highly appreciated.”
Eoin Treacy's view Thank you
for this informative email and your kind words. The pace of technological innovation
in the industrial automation and robotics sectors continues to accelerate. This
evolution is in turn contributing to increased manufacturing and industrial
productivity for a broad swathe of the wider economy. Companies involved in
the production of the machines and robots driving these productivity gains will
obviously benefit. However, as the market develops we can anticipate that competition
will increase and products will become more homogenous.
Here is a PDF of the constituents of the industrial automation section of my Favourites which may be of interest.
Japanese listed Fanuc pulled back sharply over the last couple of weeks but has found at least short-term support in the region of ¥14000 and the 200-day MA. A sustained move below that area would be required to question medium-term potential for additional upside.
In the USA Rockwell Automation continues to extend its recent advance and a sustained move below $80 would be required to question medium-term potential for additional upside. Cadence Design Systems continues to hold its four-year progression of higher reaction lows. Dover Corp broke out of its 18-month range last week and a clear downward dynamic would be required to check medium-term scope for continued upside. Aspen Technology has accelerated higher since late December and is susceptible to mean reversion.
In Germany Krones AG has held a progression of higher reaction lows since October and found support last week in the region of €44.50. A sustained move below the 200-day MA would be required to question medium-term scope for continued higher to lateral ranging. Kuka AG has accelerated higher since late 2012 and is becoming increasingly susceptible to some consolidation of recent powerful gains.
Among companies that are also involved in industrial automation but are not “pure plays” General Electric is also likely to benefit from the same theme. The share found support in the region of $20 from January and a sustained move below that level would be required to question medium-term upside potential .
There are a number of additional considerations when considering the bullish case for robotics and industrial automation and whether it should be considered an investment theme. Transporting finished products from Asia to Europe and North America is both costly and time consuming. The high cost of energy at present has exaggerated this concern. The difference in energy costs, particularly between North America and everywhere else, in running automated facilities is also a highly relevant consideration. The continued tightening of the spread in labour costs between various jurisdictions has become more relevant since the 2008 crash and makes the decision on capital outlays to build these facilities easier. Additionally, the newfound desire to ensure technological knowhow stays at home, in an increasingly competitive global manufacturing sector, is an additional tailwind for the sector.
Robotics is an important component in the next leap forward for the manufacturing sector. However increasingly dynamic innovation in materials science is equally important. (Also see Comment of the Day on December 28th 2012 for a report on nanotechnology that helps to knit together the various themes in this sector as well as a review of the relevant shares).
When robotics, materials science, energy, labour and intellectual property concerns are taken together we might consider the resulting Renaissance in Western Manufacturing to be a medium to long-term investment theme. The fact that an increasing number of large industrial companies that benefit from the associated productivity gains associated with this theme are completing decade long bases helps to support this view.