The “Internet of Things” essentially connects industrial devices, vehicles, and an array of consumer and household products to allow for advanced monitoring, analytics, and more. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
Consumer-level IoT products include things like Amazon’s Echo “smart speakers,” wearable motion and activity tracking products from the likes of Fitbit FIT and Apple AAPL, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have started to implement sensors into machines to track performance and efficiency.
One of the more obvious plays here for investors is semiconductor stocks, as chipmakers should be able to benefit from the growth of connected devices. But chip stocks are often cyclical. With that said, IoT is set to become nearly ubiquitous, which means investors can try to profit from its growth in countless industries and firms.
So today we’ve highlighted three stocks which have been flagged by the Zacks Rank that could be poised for further IoT growth soon.
1. Microsoft (MSFT)
Shares of Microsoft surged over 3.6% Thursday morning after the company easily surpassed both top and bottom-line estimates Wednesday. The positivity is part of a much larger 2019 run that has seen MSFT stock nearly double the S&P 500’s comeback. Wall Street and investors once again seemed pleased by Microsoft's Intelligent Cloud business that saw its revenue jump 22%. More specifically, the company’s Azure division stood out as a top performer, with sales up 73%. Investors should note that the tech giant’s quickly-expanding Azure division includes an IoT leg.
Microsoft works with clients such as Walmart WMT to help connect its businesses and secure its IoT networks and products. Furthermore, MSFT is poised to benefit from the eventual explosion of the connected and autonomous vehicle market. The company is also currently trading at a discount compared to its industry’s average at 25.7X forward 12-month Zacks Consensus EPS estimates and is a dividend payer. Microsoft is a Zacks Rank #2 (Buy) at the moment based on its positive earnings revision activity, which could continue after its strong fiscal Q3 2019 results.
2. Cisco Systems, Inc. (CSCO)
Cisco is a networking and tech powerhouse that has expanded its IoT business in recent years in order to better compete going forward. The company offers clients the ability to connect everything from transportation fleets to assembly lines in order to run their operations more efficiently. Cisco sells IoT-related hardware and software, among other connectivity solutions.
CSCO stock has climbed 30% in 2019 to help it consistently hit new 52-week highs along the way. Looking ahead, Cisco’s fiscal Q3 2019 earnings—which are due out May 15—are projected to surge 16.7% on 3.4% revenue growth, based on our current Zacks Consensus Estimates. Plus, Cisco is a dividend payer that is trading in line with its industry’s average forward P/E at 19.3X forward 12-month Zacks Consensus EPS estimates. And Cisco’s longer-term earnings estimate revision activity helps it rest as a Zacks Rank #2 (Buy) right now.
3. Amazon (AMZN)
Amazon, which reports its Q1 fiscal 2019 financial results after the closing bell on Thursday, April 25, is a cloud computing powerhouse that blows away its closest competitors such as MSFT and Google GOOGL. Part of the firm’s widely popular Amazon Web Services business is AWS IoT. The division helps companies around the world run more efficiently through device software, control services, and data services. Jeff Bezos’ company works with industrial firms and helps companies build better applications for everything from public safety to health monitoring. Furthermore, as we mentioned at the top, Amazon sells some of the most popular consumer-level IoT products, highlighted by its Amazon Alexa-focused devices.
Investors should note that Amazon’s revenue growth is projected to slow down, at least for the next few years, thanks somewhat to the law of large numbers. AMZN’s revenue is still projected to climb 17% in the first quarter and 18% in fiscal 2019. Better yet, Amazon’s adjusted full-year earnings are projected to jump 33% this year and surge nearly 50% higher than our 2019 estimate in fiscal 2020. Amazon is currently a Zacks Rank #2 (Buy) that rocks an “A” grade for Growth in our Style Scores system, and is trading at a more reasonable P/E these days. AMZN’s price/sales ratio of 4 also rests well below its Chinese counterpart Alibaba’s BABA 9.2.
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