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3 Stocks to Gain as Internet of Things Weaves Into Our Lives

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Everyone knows by now what Internet of Things (IoT) is. It has already become an integral part of everyday life, thanks to an ever-increasing number of connected products.

However, for the uninitiated, IoT is a concept, seeking to connect devices used for everyday living to the Internet, so that they can share and exchange data and thereby operate more intelligently. It can also enable devices to communicate with each other, as required (such as in connected homes).

At the consumer level, the IoT market is dominated by techs such as Amazon and Alphabet (GOOGL - Free Report) , whose Echo and Home, respectively, are ruling the market. Also, activity-tracking products and advanced in-car technology are other products already available. On the commercial side, a number of industrial manufacturers have started installing sensors inside machines to track performance and efficiency.

IoT Market: Strong Growth Projections

Market observers recognize IoT as a booming space. According to a recent report by research firm Gartner, worldwide spending on endpoints and services of connected objects is expected to reach nearly $2 trillion in 2017 from $737 billion in 2016.

There will be about 8.4 billion connected objects (IoT objects) in use globally by the end of this year, a rise of 31% from the year ago. This figure is likely to reach around 20.4 million by 2020. Notably, North America, Western Europe and Greater China region will dominate 67% of total globally IoT-installed bases in 2017. 

As per a Gartner report, Businesses will represent 57% of total IoT spending this year to $964 billion. Consumer applications will amount to $725 billion in 2017. The research firm has estimated that hardware spending from both segments will reach almost $3 trillion by 2020.

According to another research firm IDC, the IoT market could nearly triple in the coming years. In 2014, the global IoT market was worth $655.8 billion. However, it has the potential to reach up to $1.7 trillion by 2020.

Given such impressive projected numbers in the IoT space, investors should definitely consider adding IoT stocks to their portfolios.

Below are the three IoT stocks that have the right combination to outperform:

Cypress Semiconductor (CY - Free Report) – Cypress manufactures embedded system solutions for automotive, industrial, home automation and appliances, consumer electronics and medical products.

Last year, the company acquired Broadcom’s Wireless Internet of Things business to gain leadership in the IoT segment. Also, the company laid off 8% of its global workforce to focus on the growth areas like the IoT segment.

Recently, Cypress' IoT connectivity platform teamed up with Arrow Electronics to deliver pioneering solutions to facilitate new, inventive business models for the IoT market.

The company has a Zacks Rank #2 (Buy) and has a long-term expected earnings growth rate of 10.0%.

Although CY has returned only 17.7% on a year-to-date basis compared to the industry’s gain of 18.2%, we believe that strong growth potential of its IoT initiatives will help the stock rebound going forward.

Texas Instruments Inc. (TXN - Free Report) – The semiconductor giant has substantial opportunities stemming from the increasing demand for its microcontrollers — low cost, low power, embedded chips that have programming, and data memory.

Its focus on gaining share in the infotainment and advanced driver assistance system (ADAS) segments of the automotive market are likely to spur growth in 2017.

The company’s IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories. Its Embedded Processors segment witnessed growth of 8.1% sequentially and 15% year over year in its last reported second-quarter results.

We believe that increasing number of connected devices is expected to drive demand for these chips in 2017 and beyond that will boost top-line growth.

The stock currently carries a Zacks Rank #2 (Buy) and has a long-term expected earnings growth rate of 9.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, Texas Instruments has also underperformed the industry it belongs to on a year-to-date basis. The stock has returned approximately 11.5% compared with the industry’s growth of roughly 15.0%.

Fitbit, Inc. (FIT - Free Report) – Although the company’s growth has been slowed by massive competition in the wearables space, this is one of the few IoT pureplays that should perform well in the near future. Fitbit has devices at varying prices for individual and corporate uses. The company pursues corporate healthcare plans and has registered some major wins in the area.  

Recently, the company introduced its sleek tech-filled wristwatch, the Ionic, which could help the company gain some share in the IoT market. Moreover, Fitbit has partnered with glucose monitoring device company, Dexcom Inc. (DXCM), to help users monitor their glucose levels on its new wristwatch Ionic. The deal will definitely help Fitbit to counter some competition in the IoT market.

It has also undergone significant executive shakeup and cost structuring recently.

The company currently carries a Zacks Rank #3 (Hold). The stock has a long-term expected earnings growth rate of 22.5%.

However, Fitbit has also underperformed the industry it belongs to on a year-to-date basis. The stock has lost approximately 14.1% compared with the industry’s growth of roughly 8.7%.

Bottom Line

The above mentioned stocks have made great progress in the segment and will play a big role in shaping the market going forward. Undoubtedly, these IoT stocks can’t not be ignored.

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