All around us, the world grows more intertwined every day. Thanks in part to our global web connections, we have the ability to interact with people and things on an incredible level. This online experience can be life-saving and important, or it can be as arbitrary as simplifying monotonous tasks.
There are many industries and companies that aim to advance this experience. One growing market, known as the Internet of Things (IoT), connects our household items to a wireless network by embedding them with electronic, software, or sensor technology. This network of devices allows us to take the next step into a wireless world that relies less and less on direct human-to-computer interaction.
You might actually be using products in the IoT without knowing it. Some common examples include the remote operation of a house’s security system, wearable motion and activity tacking products, and even public trash bins that automatically alert a municipality when it is full.
The Internet of Things is definitely present in our everyday lives right now, but there is a lot more room to grow. According to research firm IDC, via the Wall Street Journal, the IoT market could nearly triple in the coming years. In 2014, the global IoT market was worth $655.8 billion, but it could reach up to $1.7 trillion by the year 2020.
With the industry showing that much room for growth, investors need to start thinking about investing in the IoT now, and we’ve highlighted a few companies and strategies for those who would like get the IoT into their portfolios.
Big Name Patent Holders
One of the most important steps a company needs to take to capitalize on emerging technology is locking down patents at the earliest possible point. In regards to the Internet of Things market, we’ve seen a lot of companies filing for patents that put them in a good position to grow as the IoT grows.
One such company is technology behemoth Apple (AAPL - Analyst Report). Apple holds a patent named “Local Device Awareness”, which describes an automated relationship between multiple close-range devices. The technology could be used for position tracking, such as finding a lost remote control, or even proximity-based virtual reality, like a video game that depends on one’s actual position in a room.
Apple’s patent is rather wide-ranging and should allow the company royalties from a variety of products in the IoT. Considering how litigation ready Apple has been in the past, one should expect the company to cash in on every dollar they are legally owed.
Another major IoT patent holder is IBM (IBM - Analyst Report). Primarily an information technology-focused company, IBM figures to be a major player in the IoT. Currently, IBM holds a patent regarding data filtering in Internet of Things devices, which describes a process in which devices receive and interpret information. This patent puts IBM amongst the frontrunners in technology that allows devices to communicate without human interaction.
IBM also stands out as a company that has invested a considerable amount in open-source technology. In fact, IBM founded the Eclipse Foundation, a non-profit organization devoted to supporting the open-source community. IBM then submitted a machine-to-machine protocol to the Eclipse Foundation, allowing people around the world to access the technology.
At the moment, Apple has a Zacks Rank #2 (Buy) and IBM has a Zacks Rank #3 (Hold).
Technology giants like Apple and IBM will certainly be leaders in the IoT market, but investors should also look into the smaller companies that will be the manufacturers of the actual hardware. For every product IoT product sold by Apple, the supplier who built one of the components within the device also stands to benefit.
One of Apple’s key suppliers is Skyworks Solutions (SWKS - Analyst Report). Skyworks is the industry leader in semiconductor manufacturing and currently produces a chip that is a vital part of the iPhone 6. Similar technology will be the backbone of the IoT movement, as semiconductors and sensors move beyond their usual homes in phones and computers and into our other household items. Check out our full report on Skyworks Solutions to get everything you need to know about the company.
Investors should also focus on some smaller cap stocks that have potential to grow in correlation with the IoT market. One such company would be InterDigital Communications (IDCC - Snapshot Report), a wireless technology leadership that currently holds at least 33 known patents for IoT products. Another emerging IoT company is Sierra Wireless (SWIR - Snapshot Report), a wireless communications expert with a product line that should fit perfectly in the IoT market.
Currently, Skyworks has a Zacks Rank #1 (Strong Buy), InterDigital has a Zacks Rank #2 (Buy), and Sierra Wireless has a Zacks Rank #3 (Hold).
The Internet of Things has the potential to change the consumer electronics industry as we know it. The growth of the market will be another indication of humanity’s expansion into an autonomous world, and investors need to start taking note of the IoT now. Whether you want to focus on the major technology players or the small companies at the heart of the IoT movement, the time is now to add this industry to your portfolio.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>