How to Make the Robots Work for Your Portfolio


This column is part of the sixth annual Heard on the Street stock-picking contest.

The robot overlords may not yet rule our world. But they will certainly prevail on the factory floor. Japan’s

Fanuc,


FANUY -0.77%

as one of the world’s largest manufacturers of industrial robots, will benefit.

The Covid-19 pandemic and a tight labor market have sharply driven up automation in factories. Worldwide sales of industrial robots grew 27% year-over-year to a record in 2021, after two years of declines, according to the International Federation of Robotics. All regions saw double-digit growth.

Fanuc Corp. (JP: 6954)

  • Recommendation: Buy
  • Price: ¥23,060

Another potential driver in advanced economies is a trend of relocating factories closer to target markets, triggered by the U.S.-China trade war as well as the supply disruptions caused by the pandemic. Such onshoring and nearshoring will inevitably involve increased use of robots, given higher wages.

Even in manufacturing juggernaut China, an aging population will drive more demand for robots. The country is the largest robot market in the world and installations there have grown rapidly in recent years. But on a per-employee basis, it still lags behind countries such as South Korea and Japan. Jefferies estimates China’s working population will decrease by 35 million by 2025 from 2020 levels, which could hasten the pace of robot adoption, looking at the experience of Japan.

Electric cars will provide another tailwind. Robots are already widely used in automobile manufacturing, but making an EV could be even more conducive to robot use, as EVs require fewer parts and used modularized components. Battery and electric motor production is also easier to automate compared with internal combustion engines.

Fanuc, as a leading industrial robot maker, will be a big beneficiary. The top four players in the sector control around 60% of the market, according to Jefferies. The company’s robot orders in the latest quarter, an indication of future sales, rose 23% from the previous quarter, driven by strong demand everywhere and especially the U.S.

Fanuc’s shares have fallen 5% this year, partly reflecting weak demand for its machine tools and other factory-automation equipment due to lockdowns in China. Total orders from China declined 11% in the latest quarter from the previous three months, but robot orders eked out an increase.

Fanuc’s robot division has grown to be its biggest revenue contributor, accounting for nearly 40% of its total sales. Strong growth in robot sales should be able to offset weakness in its other products.

In the age of rising manufacturing costs, Fanuc is a good bet. Besides, investing directly in our future robot masters now may buy you some good will down the line.

Write to Jacky Wong at jacky.wong@wsj.com

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