1 Stock Destined to Be a Big Winner

The best investors know how to read the writing on the wall. They understand that a winning growth strategy takes time to play out, and they buy companies, not numbers. The worst investors, on the other hand, often buy stocks after they've shot up in price -- only to be disappointed later. In the spirit of being better stockholders, let's look at a company that I believe has what it takes to be a big winner, despite the stock's recent pullback.

Hot to bot
Founded by Massachusetts Institute of Technology roboticists, iRobot (NAS: IRBT) is on the cutting-edge of robotics research. In addition to its well-known floor-vacuuming robot, the Roomba, it also specializes in tactical automatons such as the iRobot 510 Packbot, which is capable of everything from performing route clearance and checkpoint inspections to disarming improvised explosive devices, or IEDs, in war zones.

Sounds impressive. However, the stock is down more than 20% this year and many investors worry that government spending cuts will continue to hurt iRobot's profitability. In 2011, defense contracts accounted for 36% of total revenue. Another 9.4% of the company's revenue last year came from a deal working as a subcontractor to Boeing (NYS: BA) , in which the aerospace and defense giant and iRobot supplied the U.S. Army with Small Unmanned Ground Vehicle, or SUGV, robots. Unfortunately, the Department of Defense killed the program last year due to budget restrictions.

That hasn't stopped iRobot from finding new work for its military bots; in fact, its Warrior and PackBot builds were instrumental in removing radioactive debris from Japan's Fukushima Daiichi nuclear facility. More recently, Progress Energy purchased a trio of the robots for its nuclear plant in South Carolina.

Keeping up with the Jetsons
Thanks to budget cuts, a further decline in defense contracts is inevitable, which gives us a less-than-inspiring outlook for iRobot in 2012. But, I wouldn't count this bot out just yet. Home robots accounted for 60% of the company's revenue last year. Sales of iRobot's consumer products including the Scooba, which is their premier floor-washing robot, have helped offset losses in government funding.

Last month iRobot launched its popular Scooba product in global markets including Europe, the Middle East, Africa, and Latin America. I was surprised by the strong demand for these products overseas; in fact, a whopping 70% of the company's home-cleaning solutions are sold abroad.

Today, more than 7.5 million iRobot consumer devices are performing tasks in homes around the world, and I expect this number to grow as new products are introduced. Still, the market punished the stock after the company slashed its guidance for the year. As a result, shares are trading near a 52-week low, which I think creates a buying opportunity for shrewd investors -- especially considering new technology is barreling down the pipeline.

Meet Ava
iRobot is targeting the health-care and retail industries with a new mobile robotics platform known as Ava. The new direction is all part of the company's realignment strategy to diversify its product offerings. Ava fits into iRobot's new Emerging Technologies division, which got its start last year when the company invested $6 million in InTouch Health.

iRobot together with InTouch Health created Ava, a portable robot whose interface consists of an iPad to let users communicate remotely. Whether you need a doctor to visit you at home or you want product information in a store, the new robot brings a variety of applications to market. Because there's no shortage of ways to use this technology, it increases the likelihood of something sticking. More important, the new strategy signals to investors that iRobot is capable of generating revenue outside of its home and military channels.

Playing for the future
Innovation is in iRobot's DNA. In addition to finding new applications for its technology, management is making strategic partnerships that will pay off down the road. Last month, the company teamed up with Texas Instruments (NYS: TXN) to develop robots that will run on Texas Instruments' OMAP mobile processors. TI's OMAP platform is a perfect fit for robotic devices because it can efficiently process tasks while using the least amount of power possible.

Partnerships like this give me confidence in iRobot's ability to put its technology to work in new sectors like health care. The three industries iRobot now plays in are multibillion-dollar markets that will benefit greatly from the company's technology.

I think investors will be surprised by how quickly iRobot turns a setback (shrinking defense contracts) into an opportunity (expanding into new fields). For these reasons I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS. I also plan to buy shares once my holding period is up.

However, because of setbacks related to defense contracts, this growth story is just getting started, so less-patient investors may want to wait on the sidelines. For a more proactive solution, why not invest in stocks set to soar from this year's Presidential election? To find out how you can profit from the upcoming election, simply click hereto get The Motley Fool's latest free report, titled: "These Stocks Could Skyrocket After the 2012 Presidential Election."

At the time thisarticle was published Fool contributor Tamara Rutter does not own shares of any company mentioned in this column. Follow her onTwitter, where she uses the handle@TamaraRutter, for more Foolish insights and investing advice.Motley Fool newsletter services have recommended buying shares of iRobot. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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