Should I Buy IoT Stocks in 2017?
Tech investors, creators, and consumers of all stripes gather in Las Vegas every year to walk the halls of the Consumer Electronics Show, more commonly known as CES. Everyone in attendance is hunting for the next big innovation, but this year it was hiding in plain sight. I’ll give you a hint at what it was: this article lists our top Internet of Things (IoT) companies in 2017.
If that clue was impenetrable, let me explain. IoT stocks are among the most contentious assets on the market, because there are a wide variety of views on IoT.
Some analysts believe that the best IoT stocks are the ones that don’t exist. In other words, they are bearish on the entire concept of IoT, and they reject the premise that it is gaining traction.
On the other hand, there are analysts who believe that IoT stocks will lead market gains like Apple Inc. (NASDAQ:AAPL) did during the 2000s. Their faith in IoT stocks was fortified by this year’s CES.
Company after company introduced a new IoT-related product. But more to the point, the kind of products they unveiled seemed to add real benefit to the lives of consumers. They provided a genuine value, meaning they could eventually turn into moneymakers.
This would suggest that we’ve moved past the phase in which IoT devices are just cool toys for tech junkies; they are being shaped into essential products that will appeal to almost everyone.
As you can tell, we here at Profit Confidential are bullish on Internet of Things stocks. Our combined experience at investing spans many decades. We’ve seen the tech sector rise in dramatic fashion over the last decade, and we know what to look for in emerging technology.
The lessons of the dotcom bubble, the smartphone wars, and Murphy’s Law have shaped our thinking. We are prepared to add our full weight to the IoT momentum, and we’re not alone.
Bain Capital, LP estimates that top IoT companies will rope in $470.0 billion of revenue by 2020; General Electric Company (NYSE:GE) thinks the “Industrial” Internet of Things could make $60.0 trillion during the next 15 years; and IHS Markit Ltd (NASDAQ:INFO) predicts that there will be 30.7 billion active IoT devices by 2020. (Source: “Roundup Of Internet Of Things Forecasts And Market Estimates, 2016,” Forbes, November 27, 2016.)
But before we get too deep into the weeds, we should take a step back and ask the most basic of questions: What is IoT?
What Is IoT?
At its most basic level, the Internet of Things is an attempt to connect items we use every day—refrigerators, home security systems, air conditioners—to the Internet. The idea is that we can harness the power of the Internet to make these products better for consumers.
There were, and presumably are, a lot of people who find this notion a little ridiculous. What good can come of having a WiFi-connected refrigerator? Is it going to have a screen and speakers so I don’t have to pause my TV show while getting a snack?
In short: no, that’s not the point of IoT.
But what if your refrigerator could send you a message when you’re low on groceries? Better still, what if it gave you a list of specific items that you need to replenish? I bet that an IoT refrigerator seems a little less ridiculous when considered from that angle.
These are the kinds of problems that IoT companies are working to solve. There are home alarm systems that you can access from anywhere, so you would get an alert on your smartphone if there happens to be an intruder. There are thermostats that will optimize the temperature to suit your house, and which you can adjust without getting off the sofa.
The possibilities of IoT are nearly endless. Some analysts completely miss its potential because they think in old-fashioned terms. To them, the Internet is behind a screen of some kind. Computers, smartphones, and tablets have been the predominant mechanism for using the Internet, but those industries are dead. There is absolutely no growth left in any of them.
As investors, we’re supposed to be forward-thinking. Seeing around the corner is how many investors and entrepreneurs make their fortunes, so pay attention to our list of the best IoT stocks. These companies could ride the IoT wave to enormous returns.
Top IoT Companies for 2017: Skyworks Solutions (NASDAQ:SWKS)
Skyworks Solutions Inc (NASDAQ:SWKS) is not exactly a household name, yet its products are in almost every home in America. This microchip maker is a supplier to both Apple Inc. and Samsung Electronics Co Ltd (NASDAQ:SSNLF), but it is also one of the top IoT stocks for 2017.
While this company made its bones from the smartphone market, its chips are uniquely suited to the Internet of Things. Skyworks chips help make electronics become more efficient, which is going to be extremely important in the coming years.
We added SWKS stock to our list of top IoT stocks for 2017 with the expectation of triple-digit gains, something that should be fairly easy when you look at the raw numbers. For instance, estimates suggest there will be two billion smartphones in the world by 2020.
How many IoT devices do you think are expected by that time? One billion? Two? The experts say it will be closer to 43 billion, most of which will need chips like the ones Skyworks makes.
Add that to the fact that Skyworks stock is trading at a price-to-earnings multiple of 15.51, and you have a diamond in the rough. The share price was muted in 2016 because of an industry-wide slump, but renewed optimism for the sector should help unleash SWKS stock. We firmly believe that this is one of the best IoT stocks for 2017.
Chart courtesy of StockCharts.com
Top IoT Companies for 2017: QUALCOMM, Inc. (NASDAQ:QCOM)
Since QUALCOMM, Inc. (NASDAQ:QCOM) sells microchips that power millions of “Android” phones, it is sometimes known as the “Secret Winner of the Smartphone Wars.” But the semiconductor giant recently took a sidestep into the Internet of Things business by acquiring NXP Semiconductors NV (NASDAQ:NXPI). It was one of the smartest tech acquisitions I’ve seen in a long time.
Buying another company is supposed to do one thing: increase profits. Too many companies get big, get cash-rich, and then gobble up shiny firms that do nothing to boost their bottom lines. But the QUALCOMM-NXP deal is a different beast altogether. With NXP providing the tech and QUALCOMM providing its enormous market power, there’s almost nothing that can stand in their way.
Here’s a few reasons why:
NXP makes secure microchips. Consumers are getting a lot of benefits from IoT, but security is still important. When it comes to IoT devices in your home and in your car, the need for privacy is something that manufacturers will have to pay attention to, meaning they will turn to secure microchips. NXP has some of the best in the business.
NXP has a whopping 25% profit margin. It makes a ton of money, which could keep Qualcomm flush with cash as it conquers the Internet of Things market. Contrary to popular opinion, not all tech companies run massive losses at the expense of their shareholders. QCOM stock can afford a dividend and enormous capital gains, something it has proved over the last few years.
QCOM stock is trading at a discount. The price-to-earnings ratio on Qualcomm stock is only 17, which is far too low for one of the best IoT stocks of the year. My analysis suggests that QCOM stock could skyrocket in 2017.
Chart courtesy of StockCharts.com
Top IoT Companies for 2017: Amazon.com, Inc. (NASDAQ:AMZN)
Although Amazon.com, Inc. (NASDAQ:AMZN) is one of the biggest companies in the world, its share price still has enough potential to deliver triple-digit gains. Don’t believe me? Rewind the clock two years to when Amazon’s share price was trading around $290.00.
AMZN stock was definitively a large-cap stock at the time, so there were plenty of analysts who believed the share price had hit a ceiling. But they didn’t count on Amazon’s venture into the cloud-computing business. Because of the company’s early investments into data centers and servers, its share price advanced more than 180% in the last two years.
Chart courtesy of StockCharts.com
This means that investors have almost tripled their money on what should be a mature, dead-end stock. But AMZN stock defied the odds then, and we believe it will again. Except, this time, the Internet of Things will drive Amazon’s share price.
In fact, you could say that Amazon holds the keys to the IoT stocks kingdom. It created a platform called “Alexa,” which serves as a foundation for many IoT products. It is essentially software that connects devices and makes them smarter.
For instance, LG Electronics Inc. built refrigerators around Alexa. Home security firms like ADT Corp (NYSE:ADT) added Alexa to their alarm systems and Ford Motor Company (NYSE:F) is putting Alexa in its cars. All of these items can be controlled by a speaker that you keep in your house. Amazon calls its speaker the “Echo,” Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) calls its speaker “Smart Assistant,” and Alphabet Inc (NASDAQ:GOOG)—commonly known as Google—has the “Google Home” speaker.
In a nutshell, these speakers are a remote control for the other IoT devices. You just issue a command to the speaker, such as “Alexa, turn on the TV”… and the TV turns on. Amazon sells a piece of hardware, sure, but what it really made was the platform. It’s similar to when Google developed Android so that any smartphone-maker could use it. Alexa is the IoT equivalent.
As a result, it’s not that hard to imagine AMZN stock surging alongside the IoT market size. We know that the market is expected to rise by triple-digits before 2018, so keep a close eye on Amazon as one of the top IoT stocks of the year.