Tech stocks have been volatile lately, but there are a number of new secular trends which investors are looking to remain exposed to in the long-term. Of these, easily the most exciting for certain semiconductor companies, gadget makers, and telecom firms is the Internet of Things.
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")
The obvious play here for investors is semiconductor stocks, as chipmakers should be able to benefit from the growth of connected devices. But chip stocks have been sluggish recently. Wall Street is projecting an end to the extended cycle of strength for the industry, and investors are worried about headwinds such as demand and pricing.
Still, there is room for niche semiconductor firms to maintain their growth as the Internet of Things continues to blossom. And there are other ways to profit from IoT growth by maintaining a focus on other pieces of the technology that helps the network function.
With that said, we’ve found three stocks which have been flagged by the Zacks Rank that could be poised for further IoT growth soon.
1. SMART Global Holdings, Inc. (SGH - Free Report)
SMART Global is a specialty designer of memory solutions. The firm has an impressive book of over 250 clients from around the world—most of them major OEMs. SMART’s most recent quarterly report was another beat-and-raise performance from the firm, and although much of its recent success is owed to wins on the server side, it certainly has exposure to IoT applications.
Notably, SMART serves IoT-adjacent industries like automotive and cloud computing. The stock is currently sporting a Zacks Rank #3 (Hold) and trades at a measly 4.5x earnings. As Zacks Strategist Kevin Cook pointed out in a recent “Bull of the Day” profile for Smart, this low valuation is modeled similarly to memory peer Micron (MU)—but that should not really be the case.
In fact, SMART uses memory tech which is less susceptible to price fluctuations, something that has kept Micron at bay recently. Moreover, the company is looking at a projected long-term earnings growth rate of 15%, suggesting that its expansion should continue strongly in the future.
2. Qualcomm Inc. (QCOM - Free Report)
Another factor here is the development of 5G networks. While past network standards have primarily been based on human-to-human connection, 5G will need to power the growing Internet of Things and other technologies that seek to bring people closer to the world around them.
Qualcomm is one of the leaders on this front. The chip giant’s “Snapdragon X50 5G” modem project promises to power early 5G networks by supporting operation in the 28 GHz millimeter wave band, which will be integral for the new standard.
Moreover, QCOM is sporting a Zacks Rank #1 (Strong Buy) right now. Expectations for Qualcomm have been lowered along with the rest of the semiconductor market, but the outlook for QCOM is holding up better than some its peers. For instance, earnings estimates for its current quarter have actually moved higher in the past two months. QCOM is also looking for continued EPS growth—to the tune of 11% annualized over the next three to five years.
3. Verizon Communications Inc. (VZ - Free Report)
Moving away from the chip stocks, Verizon is also a solid, stable option for IoT and 5G exposure. You might be seeing headlines this week about the telecom giant’s rivals launching their first 5G networks, but Verizon would kindly remind you that it was first to market with the new standard. This is a large part of the reason Verizon has one of the more exciting growth opportunities among the major telecoms.
Full-year earnings growth in the current fiscal year is expected to reach 25%, with long-term annualized growth projected at 4.5%. The stock is still relatively cheap at just 11.9x earnings. Income investors also love its 4.3% dividend yield.
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