The internet of things involves the use of devices and sensors to send data across a network. This allows for benefits like predictive maintenance, use of artificial intelligence and the leveraging of remote medicine. And so what about internet of things stocks? Well, there are a variety available. But before looking at them, let’s consider some of the trends in the industry.
First of all, the internet of things category is expected to see substantial growth. According to IDC, the number of connected devices is forecast to reach a staggering 41.6 billion by 2025 and the amount of data processed will be 79.4 zettabytes. Note that one zettabyte is about 1 trillion hours of Netflix (NASDAQ:NFLX) streaming.
Applications like video surveillance will be a big part of the growth of the internet of things. But of course, there will be wide applications in areas like manufacturing, healthcare, agriculture, entertainment and the supply chain. Another key for the market will be the rollout of 5G. With high-speed connections, there will be vast improvements for the processing of the data.
OK then, given all the opportunities, what are the stocks to consider? Let’s take a look at seven:
- Alarm.com (NASDAQ:ALRM)
- Qualcomm (NASDAQ:QCOM)
- Rockwell Automation (NYSE:ROK)
- Cisco (NASDAQ:CSCO)
- NXP Semiconductors (NASDAQ:NXPI)
- Sierra Wireless (NASDAQ:SWIR)
- PTC (NASDAQ:PTC)
Internet of Things Stocks: Alarm.com (ALRM)
The name Alarm.com definitely sums up what the company does. It is a cloud-based platform focused on the needs of security, such as by helping to manage cameras, lights and locks. The service is targeted at both residential and commercial markets.
Keep in mind that the security segment remains an attractive growth opportunity. According to Alarm.com’s own estimates, spending is expected to hit $21 billion by 2022 and the growth rate is expected to be about 24%.
The company has a robust ecosystem of more than 9,000 service providers and an install base of over 6.8 million subscribers, including more than 100 million connected devices. Such advantages have made ALRM stock interesting to investors because of the recurring revenues and strong cash flows.
But the company is more than just about the security market. The technology has proven adaptable to various other categories, such as energy management, property management and even wellness.
Among the internet of things stocks, Qualcomm has perhaps the most extensive portfolio of technologies. Then again, the company is a pioneer of mobile devices, having been the creator of multiple industry standards.
Note that Qualcomm has delivered technology for more than one billion IOT devices. And yes, the innovation has continued at a brisk pace. The company has a range of systems for Bluetooth, LTE modems, Wi-Fi and NFC. Qualcomm is focused on big markets like commercial applications, smart homes, audio platforms and even smart cities.
A key to Qualcomm’s strategy is having turnkey solutions. This means combining integration with end-to-end systems that can address specific market segments. By doing this, the applications are more robust and even cheaper.
As for QCOM stock, it remains at reasonable levels, with a forward price-earnings multiple of 18.4x. There is also a decent dividend yield of 2.2%
Internet of Things Stocks: Rockwell Automation (ROK)
The origins of Rockwell Automation go all the way back to 1903. The company initially developed a carbon disc compression motor for industrial cranes. Then over the years, the company continued to innovate and acquire other companies.
As of now, Rockwell Automaton is a global leader in industrial automation, which includes both hardware systems and software. For example, the FactoryTalk InnovationSuite provides customers with tools for the industrial internet of things (IIOT) as well as machine learning, augmented reality and enterprise-grade analytics. The goal is to help customers get to market quicker, improve asset utilization, better manage enterprise risks and be more cost competitive.
It’s true that the novel coronavirus pandemic has weighed on revenues. But the company has still been able to maintain strong cash flows. But more importantly — as for the prospects of ROK stock — the long-term prospects still look robust for the company, especially as IOT continues to become more strategic for customers.
NXP Semiconductors (NXPI)
A large part of the business for NXP Semiconductors is automotive chips. With the growth in autonomous technologies, the industry is seeing strong secular growth. NXP also offers solutions for such things as radar/vision, voice recognition, broadcast reception, power management and in-vehicle networks.
But another driver for NXPI stock is its thriving industrial IOT business. The chips provide for a broad range of capabilities like processing, security and connectivity. Note that there are over 26,000 customers that use systems like NFC, Bluetooth, NFC and Wi-Fi. In fact, to bolster the business, NXPI recently acquired the Wi-Fi and Bluetooth segments from Marvell (NASDAQ:MRVL).
For the internet of things stocks, NXPI is one of the more affordable. The price-earnings ratio is at about 16.8x and the dividend yield is 1.2%.
Several years ago, QCOM tried to acquire NXPI but the deal had to be abandoned because of resistance from China’s regulatory authorities. The attempted merger was a sign of the strength of NXPI’s platform.
Internet of Things Stocks: Cisco (CSCO)
CSCO stock has been a laggard this year. The shares are off about 18%. After all, in the latest quarter, the sales dropped 9%. Part of this has been due to delays from customers because of Covid-19. But there is also the issue of more competition in the core networking business.
To deal with this, Cisco has instituted cost cutting and layoffs as well as a focus on new market opportunities, such as IOT.
The main segments for this are in the security market, which has been a nice bright spot, and the AppDynamics IT management system. No doubt, mergers and acquisitions will be key. To this end, Cisco has acquired Fluidmesh Networks, which is focused on the industrial IOT market. The company’s solutions are for mobile systems for mining, rail, ports, factories and smart cities.
With the drop in CSCO stock, the valuation is much more palatable, with the forward price-earnings ratio at 12.3x.
Sierra Wireless (SWIR)
SWIR stock has languished for quite some time. During the past five years, the shares have lost more than half their value. But this could be setting up an interesting contrarian opportunity for investors.
Founded in the early 1990s, Sierra Wireless is a Canadian-based company that develops wireless communications equipment. Some of the recent weakness in the business has been from the impact of the Covid-19 pandemic, especially with the pressures on the auto business. But over time, this should get back on track.
In the meantime, the IOT segment does look promising. The company has a platform, called Octave, that can securely ingest large amounts of data for industrial equipment and other devices. There are also sophisticated systems for connectivity, gateways and APIs for 4G and 5G networks.
Such technologies should help provide a growth story for SWIR stock. In fact, CEO Kent Thexton has indicated that the goal is to double recurring revenues to $400 million by the middle of 2024.
Internet of Things Stocks: PTC (PTC)
Founded in the mid-1980s, PTC is a global software company that targets various market categories. The biggest ones include computer aided design (CAD) and product lifecycle management (PLM). While theses industries are fairly mature, they are a good source of cash flows.
However, PTC has been investing in the internet of things as well — which is likely to be a solid growth driver. There is the Data Orchestration segment that helps companies effectively deploy applications. At the heart of this is ThingWorx, which is a comprehensive platform for the internet of things. The technology is centralized in the cloud, which makes it easier for managing systems. There is also the leveraging of AI and ML to help with complex automations and real-time insights and predictions.
Next, PTC has an augmented reality platform called Vuforia Studio. This allows for the creation of highly immersive systems for industrial purposes. For example, it can help provide training and step-by-step instructions for repairs and procedures.
Even though PTC stock has had a decent rally since the lows in March, shares are still below the highs set a couple years ago. But given the strong financials and growth roadmap, upside is likely in store.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.