The internet of things is a phrase that is thrown about a lot
lately. What does that mean? Some point to an specific network,
or a sector that has the ability to give users large amounts of
information on a specialized topic.
A good example the real estate market. It is a widely known and
understood commodity, yet the details and complexities force
specialization. Companies like Zillow (Z) and Truilia
are the go to sites that users flock to for this information.
Beyond Zillow and Trulia (TRLA)
there are the
direct brokerages like Realogy (RLGY) and
While real estate information is readily available at all of these
sites, the ones that focus on differentiating themselves and
providing the most information will likely be the winners. Since
this sector is relatively young, most companies are still looking
to achieve critical mass in terms of audience.
When we look beyond real estate there is the idea of medical
information. Companies like Research Solutions provide
historical medical documents, but not the kind that is readily
available in general searches. Again, the complexity and scarcity
of this information makes this company the internet of historical
medical documents. A company like RSSS is an important asset to
the bio technology industry that has been exploding lately.
Breaking It Down
Investors are best served to look at a company that is
covered by research analysts. That way, they can rely on the
Zacks Rank to tell them if the outlook is getting better or worse.
The Zack Rank is designed to tell you what the recent opinion of
analysts are, so companies that don't have a lot of research
coverage like RSSS do not have a rank. That said, investors
should still keep names like that on their radar.
When there is a Zacks Rank #2 (Buy) like Zipreality (ZIPR) we know
that earnings estimate have been moving higher. The opposite is
true for Trulia (TRLA) which has a Zacks Rank of #5 (Strong Sell).
Investors would be wise to wait to see analysts increase earnings
estimates which would push the stock to a Zacks Rank #3 (Hold) or
The Internet Of Things
The success of companies like Google (GOOG) and Amazon (AMZN) was
based on the need for information and products. But as the
internet has evolved, specialized players have become the
"internet of things."
One might wonder why Lexis Nexis was able to stay a profitable
business while Google (GOOG) provided a wide ranging index of
information. The answer is simple. The specialization of the
type and source of information that Lexis Nexis provides allows
the company to continue to prosper.
Others would point to one off sellers of specialty
items that are not found on Amazon (AMZN), yet the "Everything
Store" is still able give most consumers what they want. Is there
room for others? The simple answer is yes, and that is evident
via the many acquisitions that Amazon has made over the years
While the internet has evolved, the best bet is that it will
continue to do so. Hyper-specialization will allow small and
niche players to compete against companies and services that have
already reached critical mass in terms of size.
Investors would be wise to leverage the Zacks Rank when they look
at opportunities that claim to be the internet of real estate,
medical information or a specific retailer. That way, you can see
quickly if the near term prospects are rosy or dim.
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Brian Bolan is a Stock Strategist
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
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a risk limiting strategy.
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