Japan Is Tackling Its Labor Woes With Robots

Editor's note: One of the world's biggest economies is short young workers. And according to Joel Litman – founder of our corporate affiliate Altimetry – that's opening up opportunity in one corner of the market. In this piece, adapted from a February issue of the free Altimetry Daily Authority e-letter, Joel explains how an aging population is providing tailwinds for the automation trend... and reveals one company that's poised to profit.

After 35 years, Japan's stock market is finally reaching new all-time highs...

The Nikkei 225 Index – which serves as Japan's version of the S&P 500 Index – finished at 40,888.43 on Friday. It has blown past its previous peak of 38,915.87, which it reached in 1989.

In other words, Japan's stock market has pretty much been stagnant for the past three decades.

While the country is still one of the world's largest economies, its glory days are behind it...

In addition to a sleepy stock market, Japan also has the fastest-aging population. More than 1 in 10 people are aged 80 or older. Plus, the country has one of the lowest fertility rates in the world. The number of children a woman gives birth to in her lifetime has fallen from about 1.6 in 1989 to less than 1.3 on average today.

Those decades of sluggish growth are now finally catching up with Japan...

According to the Recruit Works Institute, the country is on the verge of a massive labor shortage. Japan's elderly population (those aged 65 and older) is set to peak in 2042. Meanwhile, its working-age population is rapidly declining. The institute estimates that Japan will be short 11 million workers by 2040.

Unfortunately, Japan's economy is already feeling the effects of that shortage today. Essential sectors like nursing, transportation, and even education have fallen behind.

As I'll discuss, Japan is racing to solve its demographic problem in a new and innovative way... and one company in particular is likely to be a big winner as a result.

Japan is replacing workers with robots and "avatars"...

It's a bold move – and it's taking place across various key sectors, like construction, agriculture, and automotive.

Robots are automating assembly processes in factories... tending to and harvesting rice fields... and helping move vehicles around at car dealerships.

And with the growth of AI, they're even replacing jobs in customer service... One convenience store in Tokyo uses a technology called an "avatar" to greet customers and offer them advice on what products to buy.

The avatar is displayed on a 4-foot screen and is operated by a remote worker. Eventually, the store plans to have one person controlling several avatars at the same time. That makes staffing night shifts and operating in rural locations much easier.

Japanese companies are scrambling to invest in this technology – and they aren't alone...

Many countries in Asia are also struggling with labor shortages and an aging population.

China's population, for instance, is aging rapidly after years of the "one-child policy." And South Korea, which has the lowest birth rate in the world, is forecast to become the "most aged" population by 2044.

As this trend continues, companies that work on robotics and avatars stand to benefit. Rockwell Automation (ROK) is a great example...

It's one of the largest robotics companies in the world, specializing in machines and robots that automate industrial processes.

Its products are exactly what nations like Japan rely on as their workforces get older. In fact, Rockwell gets roughly 15% of its revenue from Asia.

Historically, business has proven stable, yet strong. We can see this through a specific analytics tool we use at Altimetry – our Embedded Expectations Analysis ("EEA") framework...

The EEA starts by looking at a company's current stock price. From there, we can calculate what the market expects from future cash flows. We then compare that with our own cash-flow projections.

In short, this tells us how well a company must perform in the future to be worth what the market is paying for it today.

Over the past eight years, Rockwell's Uniform return on assets ("ROA") has risen steadily from already robust levels. Its Uniform ROA has climbed from around 22% in 2016 to 27% in 2023.

Take a look...

As countries like Japan continue investing in automation, Rockwell's Uniform ROA should keep expanding. And yet, the market is pricing in Uniform ROA to remain pretty much flat from here... only reaching 28% by 2028.

Investors are completely overlooking the huge tailwinds behind the automation trend.

Everyone is busy paying attention to the big AI plays... and overlooking companies like Rockwell that are positioned for huge profits.

It's only a matter of time before they realize the massive opportunity.


Joel Litman

Editor's note: All anyone can talk about is the "Magnificent Seven" tech stocks. But that's not the only opportunity unfolding in the market today...

Yesterday, Porter Stansberry and Joel sat down to share why a group of vitally important American companies are now trading at the cheapest prices we've seen in 20 years. It's all thanks to a historic anomaly... And it could lead to massive gains for those who position themselves now.

That's because these stocks won't be undervalued for long... To learn more, watch a replay of the discussion right here.

Further Reading

Investors should ask themselves three questions to find stocks that can beat the market. Most folks struggle with one question above all. But once you master it, you'll learn to recognize the key ingredient that can send prices soaring... Read more here.

The big names in tech are investing heavily in AI. But the corporate spending is just getting started. Billions of dollars will flow into this space in the years to come. And that's one reason to get behind the trend today... Learn more here.