Three Strong IoT Stocks to Buy Now
Technology is constantly improving, and it seems that every day a new term and a cutting-edge “hot” tech industry is created. Cycles come and go, but there’s one technology that is evolving at light speed and is rife with incredible opportunities—for both consumer and investment opportunities. That technology is the Internet of Things (IoT). And the good news for investors is, there are plenty of IoT stocks to buy now. More on those in a bit.
The term “Internet of Things” was first mentioned by Peter T. Lewis, co-founder of the first U.S. cellular company, Cellular One, in 1985. In his speech to the Congressional Black Caucus, he said that “The Internet of Things, or IoT, is the integration of people, processes and technology with connectable devices and sensors to enable remote monitoring, status, manipulation and evaluation of trends of such devices.”
IoT is basically a smart network—a way to connect internet-enabled devices with each other so they can make decisions and act upon them. According to Wikipedia, the first application of IoT was at Carnegie Mellon University in 1982, when a modified Coke machine was connected to the internet to tell users which cans were the coldest and if the machine was empty.
In a totally connected IoT world, a combination of hardware, software, data and services will connect all our sensor-driven devices, which will allow them to operate together. Applications will include smart grids, homes, cities, transportation networks, healthcare devices and automobiles.
Many of these advances are already here. My partner, Don, has a pacemaker that is read via the phone, transmitting information directly to his cardiologist. And since Christmas, our home now contains the Amazon Echo, which seems to be taking over our lives! It plays our favorite songs, can tell us the weather—pretty much anywhere—and allows us to order just about anything we need from our television set. In hindsight, maybe that’s not such a great idea!
Other IoT applications include Apple’s (AAPL) smartwatch, various fitness trackers, transportation networks that can change traffic lights from red to green to better control traffic congestion, homes that can automatically turn your heat up and down or monitor who’s at your front doors, and self-driving cars.
Real Interconnection is on its Way
Research firm Gartner reports that there are 8.4 billion connected things right now, but by 2020, the firm estimates there will be 20.4 billion smart devices. John Chambers, longtime Cisco leader, forecasts 50 billion connected devices within five years, for a total market value of $19 trillion.
The industry has come a long way. For a while, the promised global connectivity—forecasted to solve world-shaking problems—just didn’t happen. It took longer than expected for devices that connected to the internet to actually connect with each other. And keeping up with the storage and calculations of Big Data was challenge. Today, we still have many rural areas around the world where there is no cell service or wi-fi, and cybersecurity is an ongoing problem, but the last couple of years saw some very important developments that have put IoT on the tech forefront again, including:
- Firefighters with smart glasses that can project a smoke-filled building’s floor plan.
- Smart thermostats and refrigerators that can automatically adjust their temperatures (or even tell you which groceries need to be restocked!)
- Commercial security cameras and lighting, as well as personal security, such as viewing your nanny or watching your front porch for package thieves—all from your cell phone.
- The use of wearable technology for recording vital signs also promises to revolutionize the medical profession. A friend’s husband recently wore a heart monitor 24 hours a day, that automatically monitored his heart and shocked it back into rhythm—even when he had no idea he was having problems.
- Automobile technology is developing IoT at a breathtaking pace. Car devices can not only offer navigation but also optimize traffic routes to avoid congestion, accidents, or construction. Today, automakers can also remotely update software or diagnose mechanical problems.
- With the advent of autonomous autos, we’ll see much more coming with vehicle awareness capabilities that will help prevent accidents.
- Agriculture is seeing big changes from IoT, including remote monitoring of irrigation equipment, the humidity levels in greenhouses, plant chemical levels, soil profiles and air quality.
- IoT is radically changing healthcare, with lifesaving consequences, including self-monitoring for all sorts of health issues (like Don’s pacemaker or a diabetic’s sugar level), as well as real-time monitoring of an entire floor of patients, in-hospital, to recognize trends such as the spreading of infections or diseases.
- Smart energy grids are using IoT devices to monitor energy usage and maximize efficiency.
Big Pockets are Contributing to the Revolution
There are thousands of companies working behind the scenes to connect all of us and our devices. Start-up data cruncher Mattermark says that 52 of the top 100 IoT companies are in the San Francisco Bay area. There are 160 French start-ups in the IoT arena. Venture Scanner (VS) is currently tracking venture capital spending to 2067 IoT companies in 20 categories across 53 countries, with a total of $42.5 Billion in funding. Here’s a chart that tracks the number of exits (acquisitions and IPOs) in each Internet of Things category. VS says, “the IoT Software Platforms category leads the sector with 8 IPOs and 39 acquisitions. The IoT Home category follows behind with 4 IPOs and 25 acquisitions.”
And this chart shows the current investment by sector:
And don’t forget about the mega companies who are also investing, including Intel (INTC), Qualcomm (QCOM), Cisco (CSCO), Verizon Communications (VZ), General Electric (GE), Comcast (CMCSA) and Samsung. IBM made a $3 billion IoT investment last year; AT&T has partnered with eight of the 10 top U.S. car manufacturers. And that doesn’t address the investments made by Google (GOOGL) or Amazon (AMZN).
According to Mattturck, “2017 was most likely the year when the total number of IoT devices (wearables, connected cars, machines, etc.) surpassed mobile phones.” That’s significant. Predictions for last year from IDC (not yet finalized) indicate that global IoT spending should have risen to $800 billion.
This chart shows the 2017 picture of the various companies investing in the IoT market.
You can see that IoT is in the process of affecting virtually every aspect of our lives, including our pets, farming, healthcare, entertainment and energy.
The Best—and Safest—Way to Invest in IoT Stocks
That’s a lot of investment opportunity! But the question remains, how do you know which company is going to go the distance? With start-ups, it’s a roll of the dice—some will be bought out by bigger peers, others will falter and won’t survive.
Right now, I think the best way to invest in IoT is with some of the larger companies that have the billions of dollars needed to buy or create the technology. Our contributors to our Wall Street’s Best Investments and Wall Street’s Best Dividend Stocks are keeping well abreast of this industry, and three companies whose names I’ve seen again and again—and which we have recommended as IoT stocks to buy in our newsletters—look promising.
The first IoT stock to buy is Quarterhill Inc. (QTRH.TO), a Top Pick for 2018, recommended by Benj Gallander, editor of Contra the Heard Investment Newsletter. Here’s what Benj says: “A year ago, Quarterhill Inc. was a one-trick pony in the patent troll space. Revenues were about $93 million. This past quarter as it entered the arena of the Internet of Things, sales exploded to about $86 million, with net income of more than $26 million. More is likely in the pipeline if new CEO/President Douglas Parker works the same magic that he did at OpenText, where over $2.5 billion in takeovers were made under his watch with associated accretive revenues. The stock price skyrocketed.
“Though not fat, the dividend works out to better than 2%. Previously, the payout was about 4X the current distribution, as when the company was experiencing some difficulties, it was conservative and cut it back. It would not surprise me to see it increase again.
“Debt is negligible. The company trades well below the book value. The current trading price of less than $2 is a huge distance from the days when it was above $9.00. With growth-oriented Parker at the helm, the glory days may return.”
Our next IoT stock to buy is a choice from Mandeep Rai, editor of Top Stocks under $10, is Telenav (TNAV). In his report, Mandeep noted, “The demand for connectivity and the “Internet of Things” is happening everywhere—in your home, your cars, your gadgets, and more. There is no limit to how far this trend can go in the next few years – and there is a great way in the sub-$10 stock universe to play it.
“My target: Telenav This company counts Ford as its biggest customer. But companies like General Motors (GM), AT&T (T), and Verizon Communications (VZ) also round out the list for its location-based and “connected car” products. The stock briefly traded above $10 recently, before being shot down after a quarterly earnings miss.
“But opportunity lurks, because in that same quarterly report, the company reported 14.9% sales growth and $5.5 million in free cash flow. Meanwhile, there’s another catalyst that should drive this company in the near term. Tax season refunds should encourage folks to go to the dealer to put a down payment on new cars. That depletes inventories and ramps up manufacturers’ orders to replace them—bullish—for Telenav.
“I want you to have exposure to this beaten-down name if our market keeps taking off to the upside, given that Telenav is very close to support levels and has strong upside potential. So, get in now. The average analyst thinks the stock is worth $13, though my initial target is $10.”
Lastly, Patrick McKeough, editor of Dividend Advisor, chose Texas Instruments (TXN) as an attractive IoT stock to buy, saying, “Texas Instruments Inc. is a leading maker of analog chips. That technology converts inputs, such as touch, sound and pressure, into electronic signals that computers can understand.
“In the three months ended March 31, 2017, revenue increased 13.1%, to $3.4 billion, from $3.0 billion a year earlier. The improvement is mainly due to stronger chip sales to automakers and other manufacturers. That offset weaker demand from makers of personal electronic devices.
“Texas Instruments’ earnings in the quarter jumped 40.2%, to $1.0 billion, from $711 million. In the past 12 months, the company spent over $2.05 billion on share buybacks. As a result, per share earnings rose at the slightly faster pace of 40.6%, to $0.97 from $0.69.
“Meantime, the company’s use of more efficient chip-making equipment continues to pay off: in the quarter, its gross profit margin (gross profits as a percentage of revenue—the higher the better) improved to 63.0% from 60.8%. Texas Instruments also continues to spend heavily on the development of new products. Its research costs in the latest quarter rose to $369 million (or 10.9% of revenue) from $322 million (10.7%) a year earlier.
“With the November 2017 dividend payment, the company will increase its quarterly dividend by 24.0%, to $0.62 a share from $0.50. The company has now raised its dividend each year for the past 14 years.
“Texas Instruments has also increased its share buyback authorization by $6.0 billion. It can now repurchase up to $10.6 billion of its shares, or 12% of its $90.4 billion market cap (the total value of all outstanding shares). There are no time limits for these purchases.
“The company’s dividend has grown an average of 24.2% annually over the last five years. Its TSI Dividend Sustainability Rating is Above Average.”
There are, obviously, hundreds of companies that can use your hard-earned investment dollars. And if you want to speculate, you can find plenty of opportunities. But when there is a myriad of companies that are ‘surer’ bets, why not start your search for the best IoT stocks to buy with a sampling of these?
And to get further updates on these stocks or to get a whole list of other stocks that the best Wall Street’s gurus are recommending, consider taking a subscription to Wall Street’s Best Investments.
Nancy Zambell, Editor of Wall Street’s Best Investments, has spent 30 years helping investors navigate the minefields of the financial industry. Nancy scours more than 200 advisories and research reports to select the top recommendations, which she collects for you in this easy-to-read digest.Learn More
*This post has been update from an original version published in 2016.