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Technological advances over the years have led to more and more devices linking up, and becoming an “Internet of Things,” creating a web of connected devices. Plays on these Internet of Things stocks can be difficult to see right away.
International Business Machines (NYSE:IBM) describes the Internet of Things (IoT) as “the concept of connecting any device (so long as it has an on/off switch) to the Internet and to other connected devices. The IoT is a giant network of connected things and people – all of which collect and share data.”
As a result of increased connectedness, there are huge amounts of data to be collected and analyzed as well as the need for faster internet infrastructure.
In fact, there’s already an entire domain of tech stocks that benefit from the Internet of Things (IoT), including platforms that run IoT devices and cloud computing companies.
As 5G networks become mainstream, these Internet of Things stocks look increasingly tempting as long-term buys.
IoT is considered a key catalyst of the fourth industrial revolution, or ” a fusion of advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing, and other technologies,” according to Salesforce.com (NYSE:CRM).
Aside from computers and smartphones, TVs, major appliances and even light bulbs are increasingly connected online.
Internet of Things stocks are heating up as the market is forecast to grow at a 25.4% compounded annual growth rate (CAGR) and reach $1.85 trillion by 2028.
While the global semiconductor shortage continues to hamper the IoT industry’s growth, a $250 billion bipartisan manufacturing and technology bill aims to cope with such drawbacks.
With that said, today’s article introduces three Internet of Things stocks to buy in the final quarter of the year:
Internet of Things Stocks: Cisco Systems (CSCO)
Source: Ken Wolter / Shutterstock.com
52 week range: $35.28 – $60.27
Dividend Yield: 2.69%
Cisco Systems is the leading provider of enterprise networking solutions worldwide.
Through infrastructure platforms, Cisco focuses on hardware and software products for switching, data center, routing and wireless applications. Its applications portfolio includes analytics, collaboration, and IoT products.
Cisco released Q4 fiscal 2021 results in mid-August. Revenue came in at $13.1 billion, up 8% year-over-year (YOY).
Non-GAAP net income surged 5% YOY to $3.6 billion, or 84 cents per diluted share, compared to $3.4 billion, or 80 cents per diluted share, in the prior-year period. Cash and equivalents ended the quarter at $9.9 billion.
“We continue to see great momentum in our business as customers are looking to modernize their organizations for agility and resiliency,” CEO Chuck Robbins remarked on the results. “The demand for Cisco technology is strong with our Q4 performance marking the highest product order growth in over a decade.”
Investing in CSCO stock is a safe way to gain exposure to IoT without taking significant risks. Its products represent the backbone of the internet, so the company is well-positioned to benefit from the rapid growth of IoT-enabled devices.
Cisco aims to use its dominant market share in networking hardware and software to cross-sell more services. Management forecasts revenue to grow at a CAGR of 5% to 7% between fiscal 2021 and 2025, up from 1.5% between 2017 to 2021.
CSCO stock hovers at $55, and gained 23% year-to-date (YTD). The board plans to return at least 50% of its free cash flow to shareholders through buybacks and dividends.
CSCO shares are trading at 16x forward earnings and 4.7x current sales. Interested readers could regard a potential drop toward $52 as a better entry point.
Emerson Electric (EMR)
52 week range: $63.65 – $105.99
Dividend Yield: 2.14%
Global technology name Emerson Electric offers automation and software solutions for industrial and residential markets.
In 2018, it was chosen as the “Industrial IoT Company of the Year.” The group reports revenue in two main segments: Automation Solutions and Commercial & Residential Solutions.
Emerson issued Q3 results in early August. Net revenue increased 20% YOY to $4.7 billion. Adjusted earnings before interest and taxes came in at $863 million, up from $597 million in the previous year.
The company reported an adjusted EPS of $1.09, up 36% YOY. Free cash flow for the quarter stood at $977 million.
“We are pleased with our results this quarter, as accelerating sales growth in key end markets combined with strong execution by operations helped us deliver exceptional financial results,” said CEO Lal Karsanbhai following the announcement.
Analysts pay attention to Emerson’s digital automation software and technologies.
For example, EMR recently announced a multi-year global agreement with PureCycle Technologies (NASDAQ:PCT) that allows the company to use Emerson’s Plantweb digital ecosystem platform for large-scale polypropylene recycling.
Emerson’s data management software, Plantweb Optics Data Lake, helps enterprises analyze data to gain valuable insights. Given the soaring demand for advanced analytics applications, EMR’s latest software is poised to expand its customer base.
At present, EMR stock is around $95, up over 35% over the past year and 17% YTD. The shares are trading at 21x forward earnings and 3.2x current sales. A potential decline toward $90 or even below would improve the margin of safety.
Internet of Things Stocks: Honeywell International (HON)
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52 week range: $159.42 – $236.86
Dividend Yield: 1.82%
Our final Internet of Things stock is the multi-industry giant Honeywell International.
The company’s various businesses range from aerospace systems to advanced materials, building technologies, and process automation, and others.
Honeywell is becoming an important name in industrial IoT (IIoT). Management claims, “Honeywell offers the most complete set of secure, IIoT-ready solutions across all elements of the industrial internet.”
Management released Q2 results in late July. Revenue surged 18% YOY to $8.8 billion. Adjusted net income came in at $1.4 billion, or $2.02 per diluted share, up from $895 million, or $1.26 per diluted share a year ago.
The company generated free cash flow of $1.5 billion. Cash and equivalents ended the quarter at $11.4 billion.
“Our results were driven by top-line growth and margin expansion in all four segments. Organic sales grew 15%, led by double-digit growth in Performance Materials and Technologies, Honeywell Building Technologies, and Safety and Productivity Solutions,” CEO Darius Adamczyk remarked.
Analysts highlight that the company is becoming a “software industrial” through its investment in software development and IoT technology. The company also focuses on “breakthrough initiatives,” including robotics and quantum computing.
HON stock hovers at $215, up only 1% YTD, but 23% over the past year. Shares have a reasonable valuation, trading at 23.5x forward earnings and 4.5x trailing sales.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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