iRobot: Sweeping up in military markets?

Posted Mar 12th 2007 4:02PM by Steven Halpern

We've all seen the infomercials selling those ridiculous vacuums that roll around the floor on their own. And if limited to that role, I'd find little intriguing about the company behind these products -- iRobots (NASDAQ:IRBT). But to my surprise, the company has much more sophisticated units, with a range of potential roles in areas such as lawnmowers to military ordinance detection.

Gregg Early, the editor of The Real Nanotech Investor explains, "iRobot was quite the sensation, and when it issued its initial public offering in late 2005, it took off like a rocket. Then people started to sober up and wonder how a little company that makes cool robotic vacuums could survive as a publicly traded company."

"I mean, how many do you need?" he asks. Many other investors apparently felt the same as the stock plummeted. Then, notes Early, the company recently released depressing earnings news, and the stock is sold off further, nearing 52-week lows.

Despite this rather unimpressive outlook, the advisor has chosen to add the stock to his buy list, noting, "There are two things iRobot has going for it that most people overlook."

First, he points to the computer program underlying the product. He explains, "The program that makes these little things go is absolutely amazing. This is artificial intelligence (AI), not just some long script of 'if/then' statements. This gives the company far more than little robots to sell people with dirty floors."

One potential use is lawnmowers, he points out, along with other devices where exploring an entire defined space can be very handy. Most importantly, he observes, there is potential in defense and homeland security work.

Early adds, "And these little bots are going places where they're very likely to get blown up, which means more robots. If anything, the defense side of this business is going to grow much faster than anyone is expecting."

Although Early generally focuses on nanotech, he is making an exception for iRobot. He notes that this is the first stock in our aggressive portfolio that is not a nanotech play. Regardless, he says, "It is a disruptive technology company, given its artificial intelligence credentials. And as long as our country has significant numbers of troops deployed, these types of technologies will be in high demand."

Adding credibility to Early's comments is that iRobot's CEO was a feature interview in a recent issue of C4ISR, the trade magazine directed at the military and the command, control, computer, communication, intelligence, surveillance and reconnaissance industry.

The advisor notes, This is just the type of device that could be a valuable piece to the Army's new future combat system, a multi-billion dollar program to create the 'net-centric' army of the future. Buy iRobot below 16.45. In fact, from a speculative standpoint, Early suggests that a larger defense contractor might well buy out the company for a "nice premium" to its current price.

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free website, TheStockAdvisor.com.

Tags: bomb detection stocks, gregg early, GreggEarly, homeland security stocks, irbt, irobot, tech stocks, the real nanotech investor