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Weekly Bot Brief on Robotic Research and Investment Review 5-4-2018

POSTED 05/06/2018

There is nothing on earth more powerful than an idea whose time has come.  -Victor Hugo

Bot Index Highlights:Bot Index vs. S & P 500, 5-6-2018

Robotic stocks recovered from their super malaise of the prior week to increase by .417% for the week. The gain reverses the wide negative performance differential between the Bot Index and the    S & P 500 that occurred in late April. The broad market, as defined by the S & P 500 declined .243% in the week ending May 4th. The bots were led by event-driven issues regarding Apple, Rockwell, Keyence, Teledyne and Nvidia. Apple was the Bot Index’ greatest gainer due, in part, to comments made by Warren Buffett at the annual Berkshire Hathaway shareholder meeting. Mr. Buffett announced that he had purchased another 75 million shares of Apple stock, helping to boost the shares by 13.25%. Nvidia Corp. tempted investors with its upcoming May 9 earnings release to value the stock 5.62% greater this week. In anticipation of the earnings, both Morgan Stanley and Barclays upped their recommendations of the company from equal market weighting to overweight. The Japanese firm Keyence Corp. reported fiscal year earnings of 210.6 billion yen, a 37.5% increase over prior year’s 153.1 billion yen. Revenues also experienced a significant jump of 27.6%. Rockwell Automation raised guidance ten cents per share to a range of $7.70-$8.00 based upon the week’s report of a 22% gain in EPS, which was nine cents above consensus. Finally, on Thursday Teledyne informed investors that its first quarter sales expanded by 22.9% while its net income jumped from $30.5 million to $66.5, a 118% increase. The shares traded about twice their normal volume on Friday and carried the stock up 5.21% following the earnings release. Depending upon general market trading early next week, we would be surprised if the stock didn’t find further favor with investors.

On the negative side of the performance ledger last week we saw Accuray Inc. down 8.91%, Hiwin Technologies off 7.40% while Ekso Bionics slid 5.37%. Despite reporting a revenue increase of 2.6%, Accuray disappointed investors with its ten-cent loss per share versus a Zachs expectation for a loss of only 3 cents. Ekso Bionics’ decline was likely an adjustment from the prior week’s 15.53% jump which was attributed to favorable press from CNBC regarding the efficiencies of the Ekso Bionic Vest.

.Issues Discussed in the Boardroom and C-Suite:

Every year, my alma mater, North Carolina State University, produces a brief entitled Executive Perspectives on Top Risks through its Enterprise Risk Management Initiative. For the past six years the university has surveyed board members and executives across a variety of global industries. Of the 728 participants in the 2018 survey, the majority of respondents were from the Chief Risk Officer and the Chief Audit Executive positions. The findings from this year’s survey significantly differed from the rank of risks of the prior two years. The top risk for 2018 was the fourth rated concern last year and there were two new entrants to the top ten. From the Bot Brief’s perspective, three of the top ten risks were, in some capacity, a function of the robotic revolution. The number one risk noted universally by those surveyed was the rapid speed of disruptive innovations and new technologies within the industry that may outpace the institution’s ability to compete and/or manage the risk appropriately without making significant changes to the business model. Certainly, boards and executives are mindful of how new avenues of production and service will dramatically change the competitive landscape. With Amazon and its legions of warehouse robots, autonomous vehicles, blockchain production, drone delivery and surveillance, 3D industrial printing and a host of other disruptive innovations, it is no wonder these risks superseded the prior six year’s focus on the economy and regulatory oversight as the two primary corporate risks.

Ranked eighth in the worries of the world’s corporate leaders was the inability to utilize data analytics and ‘big data’ to achieve market intelligence and increase productivity and efficiency which may significantly affect the management of core operations and strategic plans. The big technology companies such as Google, Facebook, Amazon and Apple have amassed tremendous amounts of consumer preferences to gain a virtual monopoly on ‘big data’ which will inevitably be used to feed machine learning and advance Artificial Intelligence in the marketplace. To be without data will to be left behind. Or as NCSU describes, “In the digital age, knowledge wins and advanced analytics is the key to unlocking the gate to insights that can differentiate in the market.”

Finally, the tenth most anticipated risk was associated with new competition. Just as Amazon jumped into the retail grocery business, Target and Uber initiated supermarket and restaurant home delivery services and Facebook just opened a new online dating service, the barriers to entry have changed in the digital era. Specifically, executives were concerned that their existing operations may not be able to meet performance expectations related to quality, time to market, cost and innovation, as well as new competitors that are ‘born digital’ and with a low-cost base for their operations. Hence, the C-Suite has an enormous concern that new and superior competition could emerge with hyper-scalability from data mining, robotic production, artificial intelligence and 3-D printing capabilities.

Risk is certainly present in any business endeavor and the rapidity of new technology advances force an even greater need for management foresight. However, it should be noted that the Chinese character for ‘crisis’ is made of two symbols, one of which is ‘danger’ and the other is ‘opportunity’. The worries of some corporations are the prospects for those other companies that will espouse new nimble and superior capabilities that accompany the digital and robotic era.

Member: American Economic Association, Society of Professional Journalists, United States Press Association. Institute of Chartered Financial Analysts

The Bot Brief is a weekly newsletter designed for economists, investment specialists, journalists and academicians. It receives no remuneration from any companies that may from time to time be featured and its commentaries, analysis, opinions and research represent the subjective views of Balcones Investment Research, LLC. Due to the complex and rapidly changing nature of the subject matter, the company makes no assurances as to the absolute accuracy of material presented.

Balcones Investment Research can be reached at its website BalconesInvestmentResearch.com and is headquartered in Florida; with offices in Texas and North Carolina, United States

Cover photo courtesy of The Mirror, UK