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One of the strongest corners of the market in 2017 was the semiconductor industry, and we expect that trend to continue into the New Year. Throughout the chip-making space, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable “Internet of Things” (IoT) devices.
For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s (AMZN) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. And 2018 promises to be another marquee year for these suppliers, with the number of connected devices worldwide set to continue its rapid growth.
With that said, we’ve found three already-strong stocks that are looking to benefit even more from further IoT growth in 2018:
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. The company’s IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories.
In its most recent earnings report, Texas Instruments saw growth of 17% in its Embedded Processors unit, while segment operating profit climbed 45%—and that’s not to mention that TXN once again surpassed our consensus estimates for earnings and revenue. Texas Instruments is currently a Zacks Rank #2 (Buy), putting it near the top of the “Semiconductor – General” group, which is currently in the top 6% of the Zacks Industry Rank.
STMicroelectronics is a French-Italian semiconductors company that develops circuits and discrete devices for use in microelectronic devices. The company specifically tailors its tiny, low-power technology for use in a wide range of Internet of Things products. The stock is currently sporting a Zacks Rank #1 (Strong Buy).
The story for STM is aggressive earnings growth. Our consensus estimates call for earnings to expand by 38% in fiscal 2018, and that’s on top of a staggering 217% projected explosion in 2017. Revenues are growing too, as the firm’s top line is expected to swell by more than 10% this year. Meanwhile, the stock is trading at just 19x forward earnings and 2.75x sales, so investors are getting a decent price for those profits and revenues right now.
Marvell Technology is a leading designer, developer and supplier of mixed-signal and digital signal processing integrated circuits. The company’s “EZ-Connect” platform is used by a variety of global customers in the home automation, wearables, automotive, and industrial industries. MRVL is currently a Zacks Rank #2 (Buy).
Marvell is an exciting growth pick, as the firm is expected to expand its EPS figures at an annualized rate of 16% over the next three to five years. The stock also has a PEG ratio of just 1.39, which means that this earnings growth could be undervalued. Marvell also operates with a better-than-industry-average net margin of 16.5% and RoE of 12%, so investors can trust that the firm operates efficiently and delivers value to shareholders.
Bottom Line
The Internet of Things is one of the most exciting emerging tech markets in the world. And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products. The Internet of Things needs semiconductors to function, and as the IoT grows, so too will semiconductor companies.
The best way for investors to cash in on this growing trend is to identify semiconductor companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, and for the next month, you can follow all Zacks’ private buys and sells in real time. Our experts cover all kinds of trades: value, momentum, ETFs, stocks under $10, stocks that corporate insiders are buying up, and companies that are about to report positive earnings surprises. You can even look inside portfolios so exclusive that they are normally closed to new investors.
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3 "Internet of Things" Stocks to Buy for 2018
One of the strongest corners of the market in 2017 was the semiconductor industry, and we expect that trend to continue into the New Year. Throughout the chip-making space, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable “Internet of Things” (IoT) devices.
For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s (AMZN) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the "Internet of Things")
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. And 2018 promises to be another marquee year for these suppliers, with the number of connected devices worldwide set to continue its rapid growth.
With that said, we’ve found three already-strong stocks that are looking to benefit even more from further IoT growth in 2018:
1. Texas Instruments (TXN - Free Report)
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. The company’s IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories.
In its most recent earnings report, Texas Instruments saw growth of 17% in its Embedded Processors unit, while segment operating profit climbed 45%—and that’s not to mention that TXN once again surpassed our consensus estimates for earnings and revenue. Texas Instruments is currently a Zacks Rank #2 (Buy), putting it near the top of the “Semiconductor – General” group, which is currently in the top 6% of the Zacks Industry Rank.
2. STMicroelectronics N.V. (STM - Free Report)
STMicroelectronics is a French-Italian semiconductors company that develops circuits and discrete devices for use in microelectronic devices. The company specifically tailors its tiny, low-power technology for use in a wide range of Internet of Things products. The stock is currently sporting a Zacks Rank #1 (Strong Buy).
The story for STM is aggressive earnings growth. Our consensus estimates call for earnings to expand by 38% in fiscal 2018, and that’s on top of a staggering 217% projected explosion in 2017. Revenues are growing too, as the firm’s top line is expected to swell by more than 10% this year. Meanwhile, the stock is trading at just 19x forward earnings and 2.75x sales, so investors are getting a decent price for those profits and revenues right now.
3. Marvell Technology (MRVL - Free Report)
Marvell Technology is a leading designer, developer and supplier of mixed-signal and digital signal processing integrated circuits. The company’s “EZ-Connect” platform is used by a variety of global customers in the home automation, wearables, automotive, and industrial industries. MRVL is currently a Zacks Rank #2 (Buy).
Marvell is an exciting growth pick, as the firm is expected to expand its EPS figures at an annualized rate of 16% over the next three to five years. The stock also has a PEG ratio of just 1.39, which means that this earnings growth could be undervalued. Marvell also operates with a better-than-industry-average net margin of 16.5% and RoE of 12%, so investors can trust that the firm operates efficiently and delivers value to shareholders.
Bottom Line
The Internet of Things is one of the most exciting emerging tech markets in the world. And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products. The Internet of Things needs semiconductors to function, and as the IoT grows, so too will semiconductor companies.
The best way for investors to cash in on this growing trend is to identify semiconductor companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, and for the next month, you can follow all Zacks’ private buys and sells in real time. Our experts cover all kinds of trades: value, momentum, ETFs, stocks under $10, stocks that corporate insiders are buying up, and companies that are about to report positive earnings surprises. You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' private trades >>