How to Play the Coming Robot Revolution

 | Nov 25, 2016 | 12:16 PM EST
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Our Thanksgiving dinner discussions probably aren't the norm for most families. My son is a very astute businessman, while my daughter teaches at a cutting-edge science-education center. My wife was a banker for many years, and my son-in-law is a bright young man who has more degrees than a thermometer (including an MBA and a degree in agricultural economics).

I've found over the years that if I feed them all well and keep a steady pour on the wine, I can sit back, listen and learn a lot. This year was no different.

My son-in-law is Garrett Baldwin, an editor at FinAlternatives and the features editor at Modern Trader magazine. I'll take a moment to engage in some holiday nepotism and say that if you aren't reading his stuff, you should be. This year, he had some fascinating things to say at Thanksgiving dinner about the future of robotics, as well as how robots will impact on our economy and the opportunities that all of this presents for investors.

Garrett discussed the theories of Stanford University's Joshua Rauh and the University of Chicago's Steven Kaplan. They believe that the massive divide between the 1% and everyone else comes from technology and globalization. According to Rauh and Kaplan, virtually all of the 1%-ers' competitive edge and profits come from some technological edge or technology investment.

Garrett believes the next big wave in technology will be robotics, which isn't good news for workers. He thinks that even as technology makes our lives better and raises gross domestic product, all of the gains are going to go to those who own and develop the technology in question.

I even broke with protocol and allowed Garrett to cite a Paul Krugman New York Times' column where Krugman discussed robotics, writing: "If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won't do much to reduce inequality if the big rewards simply go to those with the most assets."

Garrett worries that we don't appreciate how fast technology is changing our world, particularly our labor force. Consider just the job losses from automating the logistical side of the business, with future robots packing up finished goods and loading them onto autonomous vehicles. That will mean hundreds of thousands of jobs lost. Now spend a few minutes thinking about other industries where machines can replace people and you'll get some idea about how massive robots' social and economic impact will be.

We talked a bit about how we can protect ourselves and even profit from these changes, and the answer we came up with is two-fold. First, Krugman pointed out that you have to own the assets that will produce these changes. To me, that means owning shares of companies like Nvidia (NVDA) , Rockwell Automation (ROK) , Intuitive Surgical (ISRG) and iRobot  (IRBT) . They're likely to be some of robotics' primary beneficiaries.

Of course, I opined that given these companies' current lofty valuations, it might be best to wait for a broad market pullback or industry scare before buying. Garrett agreed.

But according to my son-in-law, the real opportunity will be in cybersecurity. After all, the more we automate things both at home and in business, the more we'll need to protect ourselves from those who want to steal our stuff or cause us harm.

Think about it -- every new robot will require some sort of cybersecurity software. Robots might revolutionize the world, but cybersecurity companies will make it possible for these changes to occur.

My cybersecurity pick right now is Unisys (UIS) , but Garrett also had a couple of interesting ideas as well. He has a much higher level of faith in ETFs that I do, so he likes the PureFunds ISE Cyber Security ETF (HACK) as a way to play the sector.

For those who prefer individual stocks (like his ancient father-in-law does), Garrett suggested paying close attention to which stocks HACK adds or sells over time and "piggybacking" on the ETF's trades. That should put you in the stocks at the cybersecurity industry's forefront.

The bottom line -- robots are coming, and you need to own stocks that will benefit from their arrival. Of course, you have to own them at the right price, so I'll continue scouring the markets for the right assets at the right valuations.

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