Two Strong IoT Stocks to Buy Now
The other day, someone asked me, “Do you know anything about the Internet of Things (IoT)?” I was a bit taken aback because the concept was much hyped a few years ago by mainstream analysts and tech gurus alike, and it seemed likely that the term had become so saturated that every person on the planet knew what it was—and which IoT stocks to buy.
Upon reflection, though, I realized that it’s been a while since I’ve seen IoT as a headline in the daily media. Consequently, I decided to seek out the latest news in the ‘smart’ world.
I say ‘smart’ because the Internet of Things 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.
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The term 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.”
In a totally connected IoT world, a combination of hardware, software, data and services will connect all of 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. Others 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 Yet to Come
Research firm Gartner reports that there are 3.8 billion connected things right now, but by 2020, the firm estimates there will be 25 billion smart devices. John Chambers, longtime Cisco leader, forecasts 50 billion connected devices within five years, for a total market value of $19 trillion.
So with all these rosy predictions, why haven’t we been hearing more about IoT? The answer seems to be that the epic forecasts of total global connectivity just haven’t materialized yet. Instead, we see a bunch of expensive connected products that critics say are “nice to have” but don’t solve world-shaking problems. The issue is that there are many devices that are now connected to the internet but don’t yet have the capacity to connect with each other. The challenge—as with all revolutionary new ideas—is that lots of folks are creating the technology but there is no one standard that dominates the industry. Think back to Betamax and VHS in the VCR world, or the war between Macs and PCs. Eventually, a standard wins out, as in the VCR trials, or in the case of personal computers, software and some hardware is modified so that it can be used on both.
Other problems exist, including the inability to process the reams of Big Data that will emerge from IoT, environments where wi-fi and cellular service isn’t available, and, of course, cybersecurity challenges. Lastly, many IoT applications are for appliances that we use daily but don’t replace often—like refrigerators, thermostats, HVAC systems, even cars. So, experts project that the IoT revolution may be slower than originally anticipated as the natural replacement cycle plays out for these items.
Big Pockets are Contributing to the Revolution
While these concerns are real, don’t be fooled into thinking that IoT is ho-hum and not going anywhere fast. 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. According to CBI Insights, venture capitalists provided $3.44 billion to the industry in 2015. And don’t forget about the mega companies who are also investing, including Intel, Qualcomm, Cisco, Verizon, GE, Comcast 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).
This chart gives a fairly recent picture of what’s happening in the IoT market.
You can see that IoT will affect 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 two companies whose names I’ve seen again and again—and both of which we have recommended as IoT stocks to buy in our newsletters—look promising.
The first IoT stock to buy now is Iridium Communications (IRDM). This company was one of our Spotlight Stocks, contributed by Bill Mathews, editor of The Cheap Investor. Bill had this to say about Iridium March:
“Iridium Communications (IRDM) is the only mobile voice and data satellite communications network that spans the entire globe. It enables connections between people, organizations and assets to and from anywhere in the world, in real time. It offers postpaid mobile voice and data satellite communications services; prepaid mobile voice satellite communications services; broadband data services; and machine-to-machine services for sending and receiving data from fixed and mobile assets in remote locations to a central monitoring station.”
The next IoT stock to buy now is Texas Instruments (TXN). In Wall Street Stock Forecaster, editor Patrick McKeough has long been a fan of the company. In an article way back in late February, his editorial team reviewed TXN, reporting:
“Texas Instruments Inc. continues to benefit from its 2008 decision to quit making chips for cellular phones and focus instead on analog chips. Those products convert inputs like touch, sound and pressure into electronic signals that computers can understand. Manufacturers use them in a variety of products, including cars, cameras and appliances.
“As part of its new strategy, Texas Instruments paid $6.6 billion in September 2011 for National Semiconductor Corp. Thus, the company is now the world’s leading supplier of analog chips. In 2015, they accounted for 64% of its overall revenue. Texas Instruments gets a further 21% of its revenue from embedded processor chips, which perform mathematical calculations. The remaining 15% of its revenue comes from other chips, calculators and licensing its technology to other firms.
“This strong balance sheet also lets Texas Instruments buy back its shares: since 2004, it has cut the number of shares outstanding by 42%. The company has also increased its dividend by 171.4% in the past five years.”
Shares of TXN have climbed more than 80% since we posted Patrick’s recommendation in 2015. And the future looks great, with the company beating its earnings forecasts by $0.14 in the latest quarter.
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 are 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?
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.