Tech stocks have been unpredictable 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. Marvell Technology Group Ltd. ( MRVL)
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 #1 (Strong Buy).
Marvell offers direct exposure to several IoT-adjacent markets, is comfortably profitable, and looks to have already turned the corner of the “peak-to-trough” process hitting semi stocks at the end of their growth cycles. EPS growth is expected to finish at 5% for the fiscal year ending this month, and that’s projected to take back off again to the tune of 16% in the upcoming year.
The stock has a PEG ratio of 1.41, so you’re getting a good price for that EPS growth. Moreover, Marvell is seeing remarkable revenue growth. Sales will likely improve more than 31% in the next two quarters. Full-year revenue for the next fiscal year is expected to surge 16%, and that’s on top of 21% growth this year.
2. STMicroelectronics N.V. ( STM)
STMicroelectronics is a French-Italian semiconductors company. It develops circuits and discretes that are used in microelectronic devices. STM specifically markets its tiny, low-power technology for use in a wide range of Internet of Things products. Shares are holding a #1 (Strong Buy) and look to have found a supportive bottom after pulling back for much of the past year.
The stock has already surged nearly 20% from its 52-week low, and the value case is still easy to make. STM is trading at just 10.5x earnings, which is a steep discount to the industry’s 13x. It also has a reasonable P/S of 1.3. This is also something with long-term growth potential, as analysts have its annualized EPS growth rate over the next three to five years pegged at 5% right now.
3. Verizon Communications Inc. ( VZ Quick Quote 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 recently 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%. The stock is still relatively cheap at just 11.9x earnings. Income investors also love its 4.2% dividend yield.
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