How to Profit From the IoT (Internet of Things) Revolution
The IoT (Internet of Things) market is growing rapidly with increasing adoption of smart infrastructure to improve efficiency and countries initiating smart city projects. Today I’ll analyze Cisco Systems (CSCO), Zebra Technologies (ZBRA), and TE Connectivity (TEL), which are well-poised to benefit from this revolution.
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The Internet of Things (IoT) refers to connecting devices to the internet. In this digital era, the IoT market is expanding rapidly with its growing usage in devices ranging from ordinary household items to sophisticated industrial tools. Definitively, any device that is standalone and can be connected to the internet for monitoring or controlling from a remote location is an IoT device.
IoT is an umbrella term for things connected to the internet. It can be classified into a few broad categories: Consumer IoT, Commercial IoT, Military Things (IoMT), Industrial IoT (IIoT), and Infrastructure IoT.
Since IoT adoption does not seem likely to slow down anytime soon, I am going to discuss how investors could profit on the industry’s growth prospects. Moreover, let’s see why prominent companies with exposure to the IoT market, Cisco Systems, Inc. (CSCO), Zebra Technologies Corporation (ZBRA), and TE Connectivity Ltd. (TEL), are currently smart investments.
The IoT Revolution
With a range of usages in healthcare, utilities, manufacturing, real estate, logistics, the public sector, and retail, the IoT industry is expected to grow. It is predicted that there will be more than 64 billion installed IoT devices worldwide by 2026.
Due to the COVID-19 pandemic, the global IoT market faced supply chain issues and slow demand. The market was valued at $384.70 billion last year. However, given the continued adoption of IoT devices, the market is expected to grow from $478.36 billion in 2022 to $2.46 trillion by 2029, registering a CAGR of 26.4%.
Moreover, smart city development is expected to gain traction with increasing urbanization, leading to greater technology adoption. Smart cities use IoT devices to collect and analyze data, which is then used to improve infrastructure and public services. Europe has been a leader in this initiative. On the other hand, the $1 trillion bipartisan infrastructure bill offers U.S. municipalities technological funding, including a grant program to create smart cities.
Though better security measures might be needed in the industry, the technology is expected to continue supporting various industries. Overall, the future of the IoT market looks bright.
Performance of Major Industry Participants
The tech behemoth Microsoft Corporation (MSFT) is capitalizing on the IoT market through its Azure IoT platform. With a market capitalization of $2.10 trillion, MSFT has gained 7.6% over the past year to close yesterday’s trading session at $280.52, outperforming the S&P 500’s 4.9% returns over the same period. Another notable name in the industry is Intel Corporation (INTC). With a market capitalization of $190.70 billion, the company makes semiconductor chips, supporting enterprises to drive high capability and value in their IoT operations. Over the past five days, INTC’s stock has gained marginally to close yesterday’s trading session at $46.64.
Telecom giant AT&T Inc. (T) also operates in the IoT market. The company has a market capitalization of $139.39 billion and has gained 4.7% year-to-date. DexCom, Inc. (DXCM), with a market capitalization of $47.16 billion, commercializes continuous glucose monitoring (CGM), an IoT-based system. DXCM has gained 20.2% over the past year to close yesterday’s trading session at $480.63.
3 Top-Notch IoT to Buy Now
Though not pure-play IoT players, here are three fundamentally sound stocks that offer exposure to the IoT market and could be ideal investments to cash in on the industry trends.
Cisco Systems, Inc. (CSCO)
CSCO is a multinational corporation operating in communications and Information Technology, designing, manufacturing, and selling Internet Protocol-based networking and related products. It sells its services directly to consumers and through distributors.
For the fiscal second quarter ended January 29, CSCO’s total revenue increased 6.4% year-over-year to $12.72 billion. Non-GAAP net income improved 5.5% year-over-year to $3.55 billion, while non-GAAP EPS came in at $0.84, indicating a 6.3% increase from the same period a year ago.
The consensus EPS estimate of $0.92 for the quarter ending July 2022 reflects a 9.5% year-over-year increase. Likewise, the consensus revenue estimate of $13.90 billion for the same period reflects an increase of 5.9% from the prior-year period. Moreover, CSCO has an impressive surprise earnings history as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has declined marginally intraday to close yesterday’s trading session at $51.11.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CSCO has a Quality grade of A. This is justified by its trailing 12-month ROE, ROTC, and ROA of 30.08%, 16.49%, and 12.54%, which are 313.09%, 244.81%, and 269.38% higher than the industry averages of 7.28%, 4.78%, and 3.40%, respectively.
The stock has a Stability grade of B, in sync with its five-year monthly beta of 0.95.
In the 54-stock Technology – Communication/Networking industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, one can see CSCO ratings for Growth, Value, Momentum, and Sentiment here.
Zebra Technologies Corporation (ZBRA)
ZBRA provides enterprise asset intelligence solutions in the global automatic identification and data capture solutions industry. The company operates through the two broad segments of Asset Intelligence & Tracking and Enterprise Visibility & Mobility. It offers mobile computing, data capture, radio frequency identification (RFID), fixed industrial scanning and machine vision, services, and workflow optimization solutions.
ZBRA’s adjusted net sales increased 11.7% year-over-year to $1.47 billion for the fiscal fourth quarter ended December 31. Adjusted EBITDA rose 3.6% from the prior-year quarter to $319 million. Non-GAAP net income and non-GAAP EPS improved 2.1% and 1.8% from the year-ago period to $245 million and $4.54.
Street EPS estimate for the fiscal year 2022 of $19.82 indicates a 7.4% year-over-year improvement. Likewise, Street revenue estimate of $5.95 billion for the same year reflects a rise of 5.6% from the prior year. ZBRA has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained marginally intraday to close yesterday’s trading session at $394.28.
It’s no surprise that ZBRA has an overall B rating, which translates to Buy in our POWR Rating system.
ZBRA has a B grade for Sentiment, consistent with its favorable analyst sentiments.
The stock also has a Quality grade of B. This is consistent with its trailing 12-month ROE, ROTC, and ROA of 32.64%, 16.33%, and 13.47%, which are 348.27%, 241.38%, and 296.55% higher than their respective industry averages.
It is ranked #23 out of the 76 stocks in the Industrial – Machinery industry. The industry is rated B.
Click here to see the additional POWR Ratings for ZBRA (Growth, Value, Momentum, and Stability).
TE Connectivity Ltd. (TEL)
TEL offers connectivity and sensor solutions in various parts of the world. The company operates through the three broad segments of Transportation Solutions; Industrial Solutions; and Communication Solutions. It is based in Schaffhausen, Switzerland.
For the fiscal first quarter ended December 24, TEL’s net sales increased 8.4% year-over-year to $3.82 billion. Adjusted income from continuing operations and adjusted EPS came in at $581 million and $1.76, up 19.1% and 19.7% from the same period a year ago.
Analysts expect TEL’s EPS to increase 9.7% year-over-year to $7.14 in fiscal 2022. Likewise, Street expects revenue for the same year to improve 5.5% from the prior year to $15.75 billion. Additionally, TEL has beaten consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 0.9% intraday to close yesterday’s trading session at $122.
This promising prospect is reflected in TEL’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
TEL has a Value grade of B. This is consistent with its forward P/E multiple of 17.58, 28.1% lower than the industry average of 24.44. In terms of its forward Price/Book, the stock is trading at 3.42x, 26.5% lower than the industry average of 4.66x. The stock also has a Stability grade of B.
TEL is ranked #11 out of the 38 stocks in the Industrial – Manufacturing industry. The industry is rated B.
To see the additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for TEL, click here.
CSCO shares were trading at $51.87 per share on Tuesday afternoon, up $0.76 (+1.49%). Year-to-date, CSCO has declined -17.10%, versus a -5.94% rise in the benchmark S&P 500 index during the same period.
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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