From Comic Books to Reality: Exoskeletons Are Here to Stay

chris reeveShortly before his death in 2009, the late actor Christopher Reeve filmed a controversial commercial (for Nuveen Investments) which aired during that year’s Super Bowl showing him rising from a chair and gingerly walking despite being left completely paralyzed from a freak equestrian accident fourteen years earlier.

At the time some considered the ad to be in bad taste, mocking those among us who can no longer walk on their own. However, the overarching message of that ad – “In the future, so many amazing things will happen in the world” – has already been proven true, and if Reeve were still alive today he may very well be walking thanks to rapid advances in medical device science.

In this case, the “equipment” Reeve would don in able to walk is known as an exoskeleton – a wearable robot that works in tandem with a human body. The technology behind exoskeletons is already disrupting the standard of care for paraplegia and rippling through a dozen other medical fields. And healthcare is only the beginning for a technology with a clear and hungry market in heavy industry, aerospace, and military operations.

Until recently, though, investors had no way to profit from this disruptive technology. Research took place in universities and private labs, and few developments were ever commercialized. That has now changed. In the past 18 months, several exoskeleton players have come public and a handful of established companies have begun delving into the technology.

Industry players

Already, there are several companies zeroing in on this explosive growth opportunity, including these six:

  • ReWalk Robotics (Nasdaq:RWLK): This Israeli firm, already selling exoskeletons for paraplegics in the U.S. and Europe, went public in the U.S. last September.
  • Ekso Bionics (OTC:EKSO): Spun out from a UC Berkeley research group in January 2014, the Ekso GT is already in use in spinal cord injury rehab centers.
  • Cyberdyne (TSE:7779): A Japanese robotics firm that previously developed a cleaning robot capable of riding elevators and tidying up office buildings, Cyberdyne has transitioned into exoskeletons, where they’ve already developed single-limb prototypes.
  • Rex Bionics (AIM:RXB): This New Zealand firm, which has developed a wearable robot used in therapy sessions for wheelchair-bound patients relearning to walk, listed its stock in London in May 2014.
  • Parker-Hannifin (NYSE:PH): Industrial motion technology giant Parker Hannifin has begun allocating a piece of its $410 million research budget toward a super lightweight exoskeleton.
  • Daewoo Shipbuilding & Marine (KOSE:A042660): The Korean shipbuilder is already outfitting its workers with exoskeletons that allow them to lift up to 66 pounds without discernible effort. The next generation suit, already in development, ups the ante to 220 pounds.

That means we have range of investment choices to pick from, but in order to do so we need to get a handle on the market opportunity.

Market opportunity

At present, exoskeleton technology is only financially meaningfully when commercialized within medicine, and most profitable as it relates to paraplegia. So that’s where we begin.

Paraplegics, who are paralyzed from the waist down, number approximately 140,000 in the U.S., and that figure grows by about 12,000 annually. Because paraplegia injuries tend to happen early in life – the average age is just 31 – individuals must cope with the condition for many years. Health complications (excluding lost wages and other employment benefits) cost an average $500,000 in the first year post-injury alone. Long-term confinement to a wheelchair adds its own set of issues, including loss of bone density, pressure sores, and muscle spasticity. The possibility of exoskeleton-assisted walking – aside from huge strides in quality of life – promises lower treatment expenses and fewer secondary complications.
exo suit

In addition to helping paraplegics, exoskeletons naturally extend into four adjacent medical fields:

  • Quadriplegia: Over 130,000 Americans suffer from full paralysis. Both Ekso and ReWalk have announced intentions to develop exoskeletons for quadriplegics.
  • Multiple Sclerosis: Over 400,000 Americans suffer from multiple sclerosis, 212,000 of whom cannot walk 100 meters without another person’s help. These are prime candidates for exoskeletons.
  • Stroke: In about 25% of strokes, the individual is left unable to walk without full assistance. With 5 million Americans who have suffered a stroke and another 780,000 falling prey each year, exoskeletons offer help to a massive population.
  • Cerebral Palsy: Approximately 764,000 Americans suffer from this movement disorder, which is typically caused by brain damage during childbirth or in the first few years of life, and which currently sentences its victims to a lifetime in a wheelchair.

All told, over 2.5 million Americans are candidates for exoskeletons currently available or already under development. With only about 250 sold to date – and sales accelerating each month – the potential is virtually limitless.

While the market opportunity begins with medical mobility uses, it certainly doesn’t end there. Heavy industry and first responders are keenly interested. Imagine a dockworker able to carry as much as a forklift. Or a construction worker able to hold a 200-pound precision power tool overhead for hours at a stretch. Or an earthquake first responder able to clear heaps of twisted steel and crumbled concrete hours before cranes arrive onsite.

Of course, the military is also keen to put the technology to work. You’ve likely heard references to the “soldier of the future” withstanding showers of bullets and crushing opponents with superhuman strength. That’s a bit farfetched – I think folks have been watching too much Ironman – but a variety of other military applications are within reach. Infantrymen could carry heavy equipment over miles of rough terrain. Navy ships without doctors onboard could harness exo-skeletal limbs to perform complicated surgeries. And new suits with biometric sensors could track soldier’s health and automatically dress wounds as they are inflicted.

Where we’re investing – and not investing

The market opportunity for exoskeleton technology is real, massive, and being tackled right now. So, which company is best poised to execute on the market opportunity in a way that will reap rewards for shareholders? That is, which stock do we want to own?

The answer, for us, is clear: We want to own both Ekso Bionics and ReWalk Robotics as pure-plays on exoskeleton technology, and Parker-Hannifin as a safer play for conservative investors who prefer to own large cap stocks that pay a healthy dividend (currently yielding 2.1%).

Before we get into why we want to own those three companies, let me explain why we don’t want to own any of the other stocks.

Daewoo is out because of its size. It’s a $15 billion business; if exoskeleton sales reach $1 billion over the next five years, that would barely move the needle. It is also heavily diversified in other sectors that will be driven more by international trade – and thus demand for cargo ships – than exoskeletons. Cyderdyne is still primarily driven by its legacy robotics business, and it’s narrowly focused on the Japanese market, just a sliver of the worldwide opportunity.

Rex Bionics, on the other hand, is too small. With just a $13 million market cap, liquidity is an issue, and such a small firm is unlikely to enjoy a large enough research budget. Their New Zealand location also poses challenges to securing grants from U.S. and European universities and military branches.

A Triple Play for a Home Run

Ekso Bionics and ReWalk Robotics are in a sweet spot. They are both pure plays on exoskeleton technology, which means their success falls straight to shareholder’s pockets. They are both small companies, but at $205 million and $160 million valuations, respectively, they are liquid enough for us to acquire a stake and, if we must, to exit. Most importantly, they have each already commercialized a first product.

ReWalk, whose founder is himself a quadriplegic, has already sold over 130 exoskeletons. They have the only exoskeleton approved by the FDA for home use, and they’ve struck on a strong business model: Introduce patients to their product in a rehab setting, then sell them a home model – and a profitable extended warranty – upon discharge. I also like that ReWalk has outsourced manufacturing, allowing their team to focus on research and sales.

Ekso has sold 110 units, and they plan to introduce a home use version this year. Though they are a bit behind ReWalk in terms of building a repeatable sales model, their rehab exoskeleton is consistently ranked best in the industry. Better, they are the only firm already actively accepting government grants for research in the military and industrial spaces.

We want to own both, and so should you.  It is far too soon to begin picking the long term winner in this sector, so buy both and double your odds of being right. And if that is still too risky of an approach for you, then add Parker Hannifin to your portfolio to buy time in case it takes longer than we expect for this technology to really take off.

Challenges & Risks

Let’s be clear: This is a high-risk, high-reward investment. While we aim to capture upside, we never ignore the downside.

Here, that means keeping a vigilant eye on R&D and sales budgets. Ekso and ReWalk today spend just a few million dollars on research; with the all-importance of innovation for each, we want to see R&D budgets grow over time.  On the flip side, we don’t want our firms perfecting next generation technology before they figure out how to sell it. The balance each company strikes will define its success.

We’re also monitoring capital needs. Both companies remain unprofitable, and they’ll likely need to raise additional funds. If either resorts to dilutive or excessively expensive forms of financing, we’ll pack up and move on.

The bottom line

Exoskeleton technology is poised to break out of comic books and onto the main stage, improving the lives of millions and changing the economics of entire industries. With an opportunity this big, we want in, and we’ve found the right stocks to make our play.

Buy ReWalk Robotics up to $15, with a stop loss of $9.

Buy Ekso Bionics up to $2.10, with a stop loss of $1.15

Buy Parker-Hannifin up to $130, with a stop loss of $105


UPDATE: Equity Trades portfolio is being renamed Medical Profits

As much as we loved the idea of making trading recommendations based on short term opportunities we saw in the tech sector, the feedback we got from our subscribers is that they would prefer a longer term, and more focused portfolio. For that reason, we are renaming our Equity Trades portfolio “Medical Profits” to reflect our recently initiated coverage of the biotech sector. After moving Lattice Semiconductor into the our Next Wave portfolio to more accurately reflect its mid-cap status, the Medical Profits portfolio now has nine holdings with more on the way!


UPDATE: Lattice Semiconductor moved into Next Wave portfolio

We are moving Lattice Semiconductor (LSCC) into our Next Wave portfolio, which is designed for mid-cap tech stocks that are following a high growth curve. The same buy limit and stop loss prices will transfer over with it, and our opinion of it remains unchanged.


Investments Portfolio Update – Oracle and AT&T

By Linda McDonough, CFA


Oracle’s transition to the cloud continues to be bumpy.  Instead of the fluffy white cumulus clouds seen on a sunny day, its stock seems to be stuck under a dark and stormy nimbostratus.  Oracle reported fourth quarter earnings on June 18th.  Weak revenue and profits and a reduction in earnings guidance sent the stock down 10%.

Oracle’s bread and butter database software is still sold primarily via licenses.  Corporations purchase software licenses from Oracle for a one-time fee.  Most also pay a monthly fee for maintenance and support which allows for free or lower priced upgrades to software updates. Revenue from licensed software was down 17% in Oracle’s fourth quarter.  

Cloud revenue is derived from customer subscriptions which allow them access to Oracle software via the cloud.  Although upfront revenue is significantly less than a licensing deal, lifetime revenue from that customer should be much higher.

Total revenue, which includes hardware sales, license updates, support and cloud revenue, was down 5% partly reflecting the transition from upfront deals to cloud subscriptions.

Chairman Larry Ellison and his co-CEOs, Safra Catz and Mark Hurd, spent the preponderance of time on the company’s conference call attempting to convince investors that Oracle is performing swimmingly.  They blamed the overall weakness in revenue on foreign currency fluctuations.  If currency values had remained constant, management noted revenue would have been up 3%.  Management exuded its usual uber confidence regarding cloud revenues.

CEO Safra began the call declaring:

“We are delighted with our results, with the most important thing being that we dramatically over-achieved in the cloud.”

Safra then went on to provide a tutorial to analysts regarding Oracle’s cloud revenue. She offered a new set of numbers regarding cloud revenue that had been recalculated using a competitor’s methodology to illustrate how successful Oracle has been in this market. As reported, cloud revenues were up 32% but represent only 4% of total revenue. Although management expounds that cloud revenue is “stunningly profitable”, those profits are currently buried beneath the expenses required to build out the network required to support new cloud customers.  Based on the action in the stock, investors are skeptical that Oracle’s numbers were that impressive.

Chairman Larry Ellison threw punches at cloud competitors SAP and Workday.  Both sell ERP or enterprise resource planning software, as a cloud subscription.

“Workday says they never see SAP in the cloud ERP market. That’s the one thing Oracle and Workday agree on. It’s between us, Oracle and Workday in the mid-market and high end, the cloud ERP market and we are winning big time. We are the clear number one in cloud ERP and we are number one or number two in most other SaaS categories”.

An abundance of superlatives will take Oracle’s stock only so far.  Guidance for earnings for fiscal 2016 was below expectations and cash flow continues to be weak.  Unfortunately Oracle’s financials are in the early innings of the transition from licensed revenue to cloud subscription revenue.  Cash flow is more than enough to cover the company’s 60c annual dividend but the 1.4% yield might not be high enough to entice new investors.

Oracle is an original member of the Smart Tech Investor’s Investment portfolio and carries a hold rating based on its low STR of 3.3.


There is so much industry change swirling around AT&T that earnings seem like a moot point.  The company’s acquisition of DirecTV, which closed on May 18th, has been stealing the spotlight but other corporate developments are well worth noting.

Earnings, which were reported back in April, were down but better than expected.  Cash from operations dropped slightly but was robust enough to cover the company’s healthy $1.88 annual dividend.

AT&T continues to bulk up its position as a dominant broadband provider.  In the first quarter it spent $17 billion on advanced wireless spectrum (AWS) in an FCC auction. This spectrum is a hot commodity and bidding at the FCC auction was fierce.  Bringing this spectrum into AT&T’s nationwide portfolio allows it to cover a remarkable 96% of the U.S. with wireless access.

Wireless companies have been eager to beef up their spectrum ownership due to consumers’ insatiable demand for downloaded content on their smart phones, tablets and computers.  The AWS spectrum purchased by AT&T will allow it to handle surges in data demand.

Of course, ownership of the spectrum does not come cheap.  AT&T added $19 billion of debt in the first quarter to finance both the spectrum and its purchase of Nextel Mexico.  Debt continues to swell with the DirecTV acquisition.  Another $17 billion in corporate bonds were issued in April to help pay for DirecTV and will bring total debt to over $100 billion.

While this sounds like a scary number, it represents a usual pattern of utility companies which issue bonds to finance the huge capital expenditures needed to support customer needs.  Reliable and consistent wireless access is now considered a basic utility by most in the developed world.

AT&T was added to to the Smart Tech Investment portfolio on 06.23.14 and has delivered a total return of 4.4%.  It merits a high 9.9 STR.  Although AT&T’s stock may tread water for a bit while the company digests these large acquisitions, investors will be rewarded with its scrumptious 5.4% dividend while waiting.


NASDAQ Composite Index:                                                                       

Friday, June 19 = 5,117.00                                                   

Trailing 12 months = + 18.7%                                        

Trailing 4 Weeks = + 0.9%

Trailing 7 Days = + 1.3%                                       


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