Connected electronic devices that can transfer data over a network without requiring human involvement, also known as the “Internet of Things” (IoT), is a reality today and a fast growing segment of the broader technology sector. This has made many investors interest in internet of things stocks to buy. Although many in this space are hot names to follow, not every investment opportunity is created equal.
Market research firm Gartner forecasts that the enterprise and automotive IoT market will grow to 5.8 billion endpoints in 2020. That’s a 21% jump year over year. That’s also explosive growth for a market that involves everything from automotive manufacturing to utilities, healthcare and building construction.
A May report from Fortune Business Insights forecasts that the monetary value of the IoT market will grow to $1.1 trillion by 2026 from $190 billion in 2018, representing a compound annual growth rate (CAGR) of 24.7%.
With so much potential growth, it is not surprising that most tech companies are pursuing an IoT strategy — from Apple (NASDAQ:APPL) to Amazon (NASDAQ:AMZN), IBM (NYSE:IBM) to Intel (NASDAQ:INTC). However, some companies are investing more in IoT than others, and they have a more exciting offering in the space. Here are four of the most lucrative internet of things stocks to buy right now.
Let’s look at what makes each of these internet of things stocks stand out from the pack.
Internet of Things Stocks to Consider: Cisco Systems (CSCO)
Cisco Systems is one of the biggest providers of enterprise networking hardware that enables electronic devices to connect and communicate with one another. Cisco designs the networking hardware that other companies rely on to manage and run various connected devices. In addition, Cisco Systems has developed a software platform of its own called “Cisco Kinetic” that administers the massive amount of data involved in IoT products.
Demand for Cisco’s IoT products is only going to increase as more devices become internet-enabled in coming years. Devices ranging from household thermostats to the cars we drive are expected to move online in the coming years and many of the devices will require Cisco’s secure network and information technology monitoring solutions to manage the proliferation of online devices and ensure that they are working properly.
Cisco’s security products experienced a 6% year-over-year third-quarter revenue increase, and both its AppDynamics monitoring platform and IoT software saw double-digit gains in the quarter. That’s impressive and shows that Cisco Systems is on the right track with its IoT strategy. Other reasons to like CSCO stock include steady growth in the company’s software-as-a-service (SaaS) model, which provides a steady revenue stream, a solid balance sheet that boasts total assets of $91.4 billion versus $55.7 billion in liabilities, as well as cash and investments of $28.6 billion. And Cisco pays a consistent dividend to its shareholders.
Alarm.com is one of the smaller internet of things stocks to consider. With a market capitalization of just $2 billion, it certainly pales in comparison to the likes of Microsoft. The company based in Tysons, Virginia has more of a niche focus on security. However, there is growth potential when it comes to IoT enabled security devices. Specifically, Alarm.com provides cloud-based software platforms that allow subscribers to manage internet-enabled devices such as security cameras, lights, locks, thermostats and other interconnected products.
Alarm.com partners with service providers to sell its platform to homeowners and and business owners. The company currently works with over 9,000 service providers and has more than 6.8 million subscribers. Revenue jumped 19% in 2019 to $502.4 million, and the company is profitable.
Perhaps most exciting, Alarm.com forecasts that the global smart security market will grow to $21 billion by 2022, representing an annual growth rate of 24%. With only a small number of homes and businesses currently using Alarm.com’s platform, the IoT company appears to have plenty of runway ahead of it.
Microsoft is pushing harder than most companies into the IoT segment. The Redmond, Washington-based company is investing $5 billion into the research and development of IoT technologies, making it one of the top internet of things stocks to watch now.
Microsoft is also adding new features and services to its Azure IoT platform, which is an extension of the company’s cloud computing division. Counterpoint Research and other industry analysts have named Microsoft the best IoT platform provider, placing the company ahead of big players in the space, such as Amazon and IBM.
Additionally, Microsoft has been gobbling up smaller IoT companies in an effort to expand and improve its offerings in the space. Last year, Microsoft acquired Express Logic, which provides operating systems for IoT devices, as well as CyberX, a company that specializes in security for IoT devices. In order to effectively manage the large amounts of data generated from IoT products, Microsoft is also investing large sums to build out its artificial intelligence capabilities in Azure.
With its focus on integrating IoT with cloud computing and artificial intelligence, Microsoft is ahead of many other companies in this fast growing market and should be well positioned to capitalize on future growth opportunities for many years to come.
Another niche IoT player is Dexcom, a company that is using IoT in the healthcare space — specifically for the management of diabetes. Dexcom makes unique and proprietary medical devices that monitor people’s glucose levels. The company’s flagship product, called G6, includes an internet connected auto-applicator, sensor, transmitter and a touchscreen receiver that display real-time glucose data. Smartphones and smartwatches can also be connected and used to display glucose information.
The number of people in the U.S. with diabetes has grown to nearly 35 million people today, according to the Centers for Disease Control and Prevention. Dexcom estimates that its market penetration for continuous glucose monitoring for people on intensive insulin therapy is just 15% for people with type 2 (adult onset) diabetes. This means that Dexcom has plenty of room to grow moving forward. In 2019, Dexcom’s revenue rose a whopping 42% to $1.47 billion.
DXCM stock is expensive at $413.22 a share. But for investors who are looking for exposure to internet of things stocks in healthcare it would make for a smart long-term investment.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole held shares of MSFT and AAPL.