NEW YORK (TheStreet) -- In an interview with The Seattle Times, Nick Hanauer, a venture capitalist who invested early in Amazon (AMZN), stated that the dominant online retailer had "probably killed one million jobs in our economy." While it is difficult to quantify the future, should the minimum wage be increased, Amazon and companies in robotics, such as Google (GOOG) and in drones, such as Boeing (BA) will also gain. Firms in these industries are already benefitting as companies strive to be more competitive in the present wage structure.
There was an article in The Atlantic Monthly by Adam Davidson, "Making It in America," that actually did offer a very simple formula for replacing human workers with machines such as robots or drones.
The piece was about Standard Motor Products (SMP), a manufacturer with factories in Greenville, S.C. There are only "good guys" in the story: management obviously cares about its employees, who work hard. But to survive, Standard Motor Products will buy machinery when it is less than two years what a worker costs. The math here is simple as a result if the minimum wage is increased: if pay and other costs rise, more machinery such as robots and drones will replace employees.
Compounding this is the proven tendency of high tech equipment to get cheaper and cheaper over time.
That will benefit companies in the drone sector such as IXYS (IXYS) and AeroVironment (AVAV). There are certainly bigger entities such as Boeing and Raytheon (RTN), but AeroVironment and IXYS offer a much more focused play on drone growth. IXYS produces the semiconductors needed for operating drones. AeroVironment makes and sells drones.
It is much the same story with robotic stocks.
Blue chips such as Amazon, Google, IBM (IBM), Siemens (SIEGY) and others have robotic operations. Siemens spends $5 billion annually in robotic research. In 2012, Amazon paid $775 million for Kiva, a robotics company. Google has bought many robotic entities, such as Shaft and Redwood Robotics. For pure plays there are Adept Technology (ADEP) and iRobot (IRBT). Adept Technology builds and sells industrial and mobile robots. Doing the same, iRobot has two divisions: Home Robots, and Defense and Security Robots. For those who want broad exposure to the sector there is the RoboStox Global Robotics and Automation Index (ROBO) exchange traded fund.
But no other company comes together as one to so benefit from raising the minimum wage as Amazon.
Going by what Hanauer said, Amazon has already done away with one million jobs due to it providing the same goods and/or services at a lower cost to employers. When the minimum wage rises, so will the number of jobs that Amazon replaces in the future (even more retail clerks, delivery men, back office staff, warehouse workers, etc...) among its customers. It will be doing this more and more with its own robot armies and fleets of drones, too.
Interestingly enough, Nick Hanauer was supporting a $15 an hour minimum wage in The Seattle Times piece.
Mitt Romney recently came out in support of increasing the minimum wage. There certainly is more and more support for lifting the minimum wage. Rising right along with the level of the minimum wage will be many stock prices for companies such as Amazon, along with those in robotics and drones.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates AMAZON.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMAZON.COM INC (AMZN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 22.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- AMAZON.COM INC has improved earnings per share by 27.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, AMAZON.COM INC turned its bottom line around by earning $0.58 versus -$0.10 in the prior year. This year, the market expects an improvement in earnings ($1.09 versus $0.58).
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- The gross profit margin for AMAZON.COM INC is currently lower than what is desirable, coming in at 33.92%. Regardless of AMZN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.54% trails the industry average.
- Net operating cash flow has declined marginally to -$2,502.00 million or 5.48% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: AMZN Ratings Report