At present, investors across the pool are almost dumbfounded by the colossal 500% surge (since 2012) in the London-listed Internet-of-Things stock, Telit Communications. While this so-little-known hardware stock created a loud impact on the investment world, it is time for us to wake up to the latest revolution in technology − the Internet of Things (IoT).
If you are not persuaded yet, this is what Gartner has for its projection for IoT. According to this leading information technology research and advisory company, “4.9 billion connected things will be in use in 2015, up 30 percent from 2014, and will reach 25 billion by 2020.” So, in less than five years, we can expect our lives to be more or less controlled by IoT.
And for investors, the most important part of IoT is that its benefit is not limited to any industry. Rather, it will be felt across all business segments and investment arenas. Quite unbelievable, isn’t it? But if you go by Gartner’s estimates, manufacturing, utilities and transportation will be the top three sectors using IoT in 2015. This ranking will again change to utilities, manufacturing and the government by 2020. Interestingly, the government will replace transportation in the third spot on the back of its investments in Smart Street and area lighting.
Quickly Knowing IoT
Consider a situation when you say “Going to sleep” to your smart app, and your house lights will dim, doors will get locked and the security alarm will be enabled. The same app will order your coffee machine to make a cuppa once you pipe “Good morning.”
According to an article by home automation maker, Control4 Corporation CTRL, the day is not far when its fitness app will check in with the smart refrigerator and send some healthy dinner recommendations to the users’ email based on their daily calorie goals and what’s in the fridge. This and much more will be accomplished by IoT in the days to come.
But Jamie Carter says, “Never mind the 'things', it's the data they create which is vital.”
Undoubtedly, the rise of cloud platforms, phones, phablets, tablets and other smart devices as well as apps has made acceptance of IoT easier among the masses. Firstpost.com puts the turning point of IoT to when Alphabet Inc. GOOGL decided to enter our daily lives and be a part of our routine courtesy Android in 2011.
Another turn came when Alphabet acquired Nest Labs, the maker of Thermostat, security cameras and smoke detectors. The world is now waiting for the company’s launch of the new low-power IoT operating system, Brillo, which is designed to run on and connect multiple devices from a washing machine to a rubbish bin and link in with existing Google technologies.
Alphabet’s rival, Apple AAPL, is not to be caught napping. Its home automation platform – HomeKit – launched in 2014 will control and monitor third-party gadgets. This device awaits its first retail shipment later this year.
The growth in connectivity and data could also mean a huge opportunity for wireless communication stocks like Cisco Systems, Inc. CSCO to meet the burgeoning demand for smart devices.
4 Stocks to Bet On
Below we highlight four such stocks that have shown early signs of tremendous growth leveraging IoT market opportunities.
Alphabet Inc.
We have already discussed about this pioneer in IoT. Alphabet’s IoT company, Nest, is currently geared up to launch an online store which will sell the IoT products it has created in collaboration with other leading brands like LG, Phillips and Whirlpool. This is part of the company’s strategy of becoming a leading IoT hardware retailer. The revenue potential is building up with one in eight Nest homes already using a Works with Nest product.
The stock has skyrocketed 55.8% in the last two years and its Zacks Rank #2 (Buy) implies that it still has huge upside potential. The expected earnings growth of 12.77% for the current year is far ahead of the industry average of a mere 3.41%. Projected sales growth is pegged at 14.55% for the current year compared with 11.03% for the industry.
IBM Corporation IBM
This high-value innovation giant in the field of information technology (IT) is well known as one of the inceptors of IoT. Based on its cloud-based services and using rich analytics, IBM’s application “Internet of Things Foundation” provides new insight for innovation and transformation.
Investors would do well to pay attention to the company’s latest buzz, a new IBM Cloud-based service to help automakers create an IoT-connected vehicle which will efficiently utilize vehicle data for predictive vehicle maintenance and real-time diagnostics on engine trouble, as well as guide drivers to the most efficient traffic routes. According to the company, by 2020, 90% of new cars will be equipped with extensive connectivity services.
A favorable ROE of 122.86% compared with 3.04% for the industry makes the stock all the more attractive to IoT investors.
Amazon.com Inc. AMZN
Any IoT discussion is incomplete without the mention of this e-commerce giant. Amazon’s home WiFi-connected product buttons, Dash, have redefined smart buying. Recently, the company has jumped into the hardcore IoT arena with its cloud computing unit launching a new platform to let customers build applications to connect devices via cloud. This poses a stiff competition to popular IoT cloud service giants like Microsoft MSFT and IBM.
Amazon has raised a formidable 77% in the last two years. The expected earnings growth of 392.7% for the current year compares favorably with the industry average of 17.6%. Projected sales growth is pegged at 18.9% for the current year compared with 12.3% for the industry.
Control4 Corporation
Over more than a decade, leading home automation player Control4 has been working successfully in the smart home niche. Its popular smart home products include thermostats, lights, appliances, locks, garage doors, blinds, sprinkler systems, pools and spas, fans and fireplaces which are designed to be compatible with most home automation applications.
This Zacks Rank #2 stock’s projected sales growth (for the current fiscal) is impressive at 14%. Moreover, positive earnings estimate revisions over the last two months should be reflected in its stock price.
Bottom Line
While the majority will focus on the big shot IoT players, we ask you to minutely study the market to get a list of lesser known stocks that are yet to make it big. You never can tell, for some day one of these stocks might turn up as the “Telit Communications” of your portfolio.
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