The best stock for the next industrial revolution

The elements are in place for explosive growth in the automation and robotic revolution. A company called Proto Labs is positioned to benefit.

By StreetAuthority Mar 25, 2013 4:38PM

It's time to prepare for the most significant technological change since the advent of the personal computer.    

It was predicted in science fiction books
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 and films of the 1950s, and is already established in some industries.       
                             
Just as the automobile destroyed the horse-and-buggy business, this technology will forever alter the way we look at work and the economy. Currently valued at $100 billion, this industry is projected to quadruple by 2020, creating numerous opportunities for savvy investors.

Radical changes in the underlying technology are creating the next explosive growth sector. And investors with the foresight to jump on this trend could have a solid chance at significant, long-term profits. 

I am talking about automation and the robot revolution. Here are the sparks igniting this explosive growth:

1. Declining costs
Industrial robots are getting cheaper and increasingly attractive to businesses. Lower costs for capital equipment and software in Asia, as well as advances in automation, are driving expenses to affordable levels.

2. Artificial intelligence innovations
This is the robot's brain. The ability to process huge amounts of data is on its way to allowing robots to take on nearly human characteristics. More sophisticated sensors are fine-tuning robots to nearly mimic the human brain.

3. The shifting of relative capital and labor costs
Low-interest rates with the higher relative cost of labor have created demand for robots. In other words, a robot is becoming cheaper than keeping a human on the payroll. At the same time, many experts say more jobs will likely be created by the use of robots.

"The expansion of robotics is likely to mean a big boost in productivity and faster economic growth," said Erik Brynjolfsson, a professor of information technology, and the director of the MIT Center for Digital Business at the MIT Sloan School of Management. "Over time, it also could create millions of new jobs, as computers and the Internet did in the 1990s," he added.

Investors can explore traditional automation/robot opportunities with manufacturers such as iRobot (IRBT), the maker of the famous iRobot vacuum cleaners, and Intuitive Surgical (ISRG), which makes robotic-surgical instruments. In fact, opportunities in this booming niche market are deep and wide.

But my favorite niche in this arena is 3-D printing: A process that uses digital technology to make 3-D objects by layering material (usually plastic) into different shapes. It's truly an amazing example of robotic technology.

I think Proto Labs (PRLB) best exemplifies the potential in this new use of robotics. The company's market capitalization stands at a little more than $1 billion, and recent fourth-quarter earnings shined.

Revenue of nearly $34 million and earnings of just above 30 cents a share readily beat the consensus estimates of 26 cents a share and less than $33 million in revenue. That was more than a 30% increase compared with the same quarter in 2011. Gross margin advanced from close to 57% to more than 62% year over year.

Shares of Proto Labs have sharply uptrended since mid-November 2012. A short-lived earnings spike pushed the price above $52 in February, with the price falling back but continuing the uptrend. I like this one as a breakout play with a close above the $50 level (as I've outlined in the chart below).



Note that Proto Labs doesn't make 3-D printers; it offers 3-D printing services to companies without their own equipment. If you, as I do, think the 3-D niche will revolutionize the U.S. manufacturing, then other companies to consider are printer makers Stratasys (SSYS), 3D Systems Corp. (DDD) and ExOne (XONE).

Risks to Consider: Robotics, and 3-D printing in particular, are emerging technologies with tremendous potential but also risk. There is no telling when something better will be invented or a hot new tech will be dismissed as a fad by the marketplace. Always use stops and position size properly when investing.

Action to Take: Proto Labs is a good buy on a breakout close above $50. I find the growth projections in the 3-D printing niche to be the most compelling fact about this stock. With earnings per share expected to grow by more than 145% this year, 26% in 2014 and 30% in the next five years, I would not be surprised to see this company at $75 in the next 18 months.

David Goodboy does not personally hold positions in any securities mentioned in this article. 

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10Comments
Mar 26, 2013 11:53AM
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"Lower costs for capital equipment and software in Asia, as well as advances in automation, are driving expenses to affordable levels."

Not only have we lost most American manufacturing jobs to Asia, now Asia will make the humanized robots that will replace remaining American workers here because, of course,  it costs less. Both ways the American worker loses, and how long can that continue? Not everyone can be a Wall Street banker, and all those displaced by humanized robots must have income to survive or the entire socioeconomy will fail no matter how many robots are doing all the work previously done by real people. It all is too absurd, but that is the consequence of a consumer-driven-to- excess socioeconomy that always seeks and demands the lowest price no matter the tragic attendant costs of that "lowest price" obsession.
Mar 26, 2013 12:12PM
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Looks like a bull market for robot repair and maintenance. :>)
Mar 25, 2013 11:57PM
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Think of the day of the effective un-manned infantry battalion.  

Mar 26, 2013 10:12AM
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Any ETF's available for this segment?
Mar 26, 2013 5:15PM
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Hey it's the future...just like unmanned drones.  Now Congress is in debate over the use of them.
So things do and will constantly change, even within lawful usage. Bottom line...no guarantees.
Mar 28, 2013 8:13AM
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The  best  stock  for  the  next  Industrial  Revolution  should  be  the  conglomeration  of  all  Chinese  restaurants  in  every  town,  as  one  unit  and  a  public  company.
Mar 26, 2013 12:16PM
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Proto Labs is not a 3D-printing company, even one of its manager said so.
Mar 26, 2013 9:42AM
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Dear author (fool): You envision a world OF comic book ideas put into use, but you forget that in order to invest, the general public needs currency generated from jobs and paychecks. Can't you see what "automation" has already done to this world and our nation? Did you think "stupid article writer" will be paying you enough to survive to retirement? Do you envision Ben Bernanke and his successors just printing our way to a Star Trek existence? Strange for you, but not for anyone with commonsense... what goes up, MUST come down and BOUNCE if it is to go up again. using that simple premise, the Age of Technology as forced on the world by Generation X & Y is inflexible. It demands it's own order or else. AS it crashes down to Earth in the coming months (forced to by currency compromise) it will smash into a zillion unusable parts and utter dysfunction. What you should WORRY about is terrorists using those parts to do bad things. I suspect there will be plenty of parts and plenty of delusional fools with a little knowledge, pissed off that their bubble broke. We need helper-technology, not job-scalper-technology. If you can't see that, you are in for a sudden and rude awakening sooner than you are prepared for one.
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