This Small-Cap Stock Could Be Big One Day
For the most part of the last decade, investors have been extremely enthusiastic about mega-cap tech stocks.
These companies tend to be well-established and many of them are still growing.
The problem is, as investors rushed toward them, their stock prices shot through the roof. There are even tech stocks—I’m looking at Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG), in particular—that trade at over $1,000 per share.
For most people, buying 100 shares of these mega-cap tech stocks would require opening a margin account. In other words, they would need to borrow money from their broker.
But what if you want to use your own money to bet on the next big thing? Well, then I would suggest checking out the smaller companies in the tech world.
Obviously, they are not going to be as established as the mega-cap ones. But here’s the thing: Compared to a mega-cap stock, a small-cap stock may have a better chance of making a big surge.
You see, if a company has a market capitalization of $500.0 million, it would need to add another $500.0 million to its market cap for its stock price to double.
If, on the other hand, the company already commands a $500.0-billion market cap, it would need another $500.0 billion in market cap for its stock price to double.
A business would need to grow by a lot to justify an additional $500.0 billion in market capitalization.
Of course, earning an extra $500.0 million in market cap is also no small task, but it’s probably easier to achieve than justifying another $500.0 billion.
And if you are betting in the right industry, a small-cap stock just might make you hit the jackpot.
But what’s the right industry?
Well, there are quite a few candidates. But I’m pretty sure that the Internet of Things (IoT) is one of them.
Betting on the Internet of Things
Simply put, the Internet of Things (IoT) is a network of connected devices that allows them to connect, interact, and exchange data with each other.
The neat thing about IoT is that there’s no limit on what those connected devices could be. They could be cars, security cameras, coffee makers, lamps, heart rate monitors, and virtually anything you can think of.
That means the application of IoT is endless. Right now, companies have been working on IoT applications in the consumer electronics, transportation, agriculture, healthcare, and manufacturing industries, just to name a few.
Needless to say, there is a lot of money to be made in the business.
According to consulting firm Bain & Company, the combined markets for IoT would grow to $520.0 billion by 2021. That’s more than double the $235.0 billion spent in 2017. (Source: “Bain & Company predicts the Internet of Things market will more than double to $520 billion by 2021,” Bain & Company, August 8, 2018.)
If you want to make big money from tech stocks, the Internet of Things is a market that you cannot ignore.
Now, I know what you’re thinking: “There are plenty of companies making IoT devices, which one should I choose?”
Well, when there’s a gold rush, I’d like to be selling picks and shovels.
Top IoT Stock: Sierra Wireless, Inc.
Sierra Wireless, Inc. (NASDAQ:SWIR) happens to be a pick-and-shovel play in the ongoing IoT gold rush.
Sierra Wireless is not making a smart thermostat or an activity tracker. Instead, it makes embedded modules, gateways, and routers that are needed for devices to communicate with each other.
The company offers end-to-end solutions, helping companies bring their IoT products and services to market faster and at a lower cost. That’s why I call it a pick-and-shovel play.
With a stock price of around $15.00 per share and a market cap of just under $550.0 million, Sierra Wireless is not really a blue-chip tech stock.
But it’s no startup either. In fact, despite not being a well-known name, the company has built a strong presence in its industry and is serving some high-profile customers.
Right now, Sierra Wireless’ customers include Cisco Systems, Inc. (NASDAQ:CSCO), Dell Technologies Inc (NYSE:DELL), Lenovo Group Limited (OTCMKTS:LNVGY), Nissan Motor Co Ltd (OTCMKTS:NSANY), Volkswagen AG, Duke Energy Corp (NYSE:DUK), among others. (Source: “Corporate Overview,” Sierra Wireless, Inc., last accessed January 25, 2019.)
And while IoT seems to be a recent thing, Sierra Wireless has been in business for quite some time.
In fact, the company has been deploying IoT applications for over 24 years. Since its inception, Sierra Wireless has shipped more than 150 million machine-to-machine devices worldwide.
The best part is that the company is still growing at a rapid pace.
According to its latest earnings report, Sierra Wireless generated $203.4 million of revenue in the third quarter of 2018, representing a 17.9% increase year-over-year. Adjusted earnings came in at $0.29 per share, up 20.8% compared to the $0.24 per share earned in the year-ago period. (Source: “Sierra Wireless Reports Third Quarter 2018 Results,” Sierra Wireless, Inc., November 8, 2018.)
As is the case with any up-and-coming industry, investing in IoT will come with its uncertainties. We know there will be a lot of connected devices, but it’s yet to be seen which company the biggest winner will be.
That being said, Sierra Wireless offers a unique investment thesis by being the pick-and-shovel play in the IoT business. It has a high-quality customer base and is currently selling products and services in over 130 countries around the world.
If the company can keep growing its financials—and it likely will, given the world’s increasing IoT spending—investors might reward it with a much higher share price. Looking ahead, SWIR stock investors could make some big returns.