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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 - Snapshot Report) and Truilia are the go to sites that users flock to for this information.

Beyond Zillow and Trulia (TRLA - Snapshot Report) there are the direct brokerages like Realogy (RLGY) and Zipreality (ZIPR - Snapshot Report).

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 - Snapshot Report) we know that earnings estimate have been moving higher. The opposite is true for Trulia (TRLA - Snapshot Report) 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 higher.

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 including Zappos.

Conclusion

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 for 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.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.

Follow Brian Bolan on twitter at @BBolan1

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