The IoT (Internet of Things) market is growing rapidly with increasing adoption of smart infrastructure to improve efficiency and countries launching smart city projects. Today I will analyze Cisco Systems (CSCO), Zebra Technologies (ZBRA) and TE Connectivity (TEL), which are well positioned to benefit from this revolution.
The Internet of Things (IoT) refers to connecting devices to the Internet. In this digital era, the IoT market is growing rapidly with its growing use in devices ranging from ordinary household items to sophisticated industrial tools. Ultimately, any device that is autonomous and can be connected to the Internet to monitor or control remotely is an IoT device.
IoT is a generic term for objects connected to the Internet. It can be categorized into a some major categories: consumer IoT, commercial IoT, military objects (IoMT), industrial IoT (IIoT) and infrastructure IoT.
Since IoT adoption doesn’t seem likely to slow down anytime soon, I’ll discuss how investors could take advantage of the industry’s growth prospects. Additionally, let’s see why prominent companies with exposure to the IoT market, Cisco Systems, Inc. (CSCO), Zebra Technologies Corporation (ZBRA) and TE Connectivity Ltd. (PHONE), are currently smart investments.
The IoT revolution
With a range of uses in healthcare, utilities, manufacturing, real estate, logistics, public sector and retail, the IoT industry is expected to grow. It is expected that there will be more than 64 billion IoT devices installed in the world by 2026.
Due to the COVID-19 pandemic, the global IoT market has faced supply chain issues and sluggish demand. The market was valued at $384.70 billion last year. However, considering 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 26.4% CAGR.
Moreover, the development of smart cities is expected to gain momentum with increasing urbanization, resulting in greater adoption of technology. 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. Meanwhile, the bipartisan $1 trillion infrastructure bill offers U.S. municipalities tech funding, including a grant program create smart cities.
Although better security measures may be needed in the industry, the technology should continue to support various industries. Overall, the future of the IoT market looks bright.
Performance of major industry players
Technology giant Microsoft Corporation (MSFT) capitalizes on the IoT market through its Azure IoT platform. With a market cap of $2.10 trillion, MSFT has gained 7.6% over the past year to close yesterday’s trading session at $280.52, outperforming S&P returns of 4.9%. 500 over the same period. Another notable name in the industry is Intel Corporation (INTC). With a market capitalization of $190.70 billion, the company manufactures semiconductor chips, helping companies generate high capacity and value in their IoT operations. Over the past five days, INTC shares have gained slightly to close yesterday’s trading session at $46.64.
Telecommunications giant AT&T Inc. (J) also operates in the IoT market. The company has a market cap of $139.39 billion and has gained 4.7% year-to-date. DexCom, Inc. (DXCM), with a market cap of $47.16 billion, markets 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 IoT stocks to buy now
While not pure IoT players, here are three fundamentally sound stocks that offer exposure to the IoT market and could be ideal investments to take advantage of industry trends.
Cisco Systems, Inc. (CSCO)
CSCO is a multinational communications and information technology company, designing, manufacturing and selling Internet Protocol-based networks and related products. It sells its services directly to consumers and through distributors.
For the fiscal second quarter ended Jan. 29, CSCO’s total revenue increased 6.4% year-on-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 an increase of 6.3% compared to 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. Similarly, the consensus revenue estimate of $13.90 billion for the same period reflects a 5.9% increase over the prior year period. Additionally, CSCO has an impressive surprise earnings history, as it has exceeded consensus EPS estimates in each of the past four quarters.
The stock fell slightly during the day to close yesterday’s trading session at $51.11.
CSCO’s strong fundamentals are reflected in its POWR Rankings. The stock has an overall rating of B, which is equivalent to Buy in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CSCO has a quality rating of A. This is justified by its last 12 months DEERROTC and ROA of 30.08%, 16.49% and 12.54%, 313.09%, 244.81% and 269.38% higher than industry averages of 7.28%, 4.78 % and 3.40%, respectively.
The stock has a stability rating of B, in line with its five-year monthly beta of 0.95.
In stock 54 Technology – Communication/Networking the industry, it is ranked #5.
In addition to the POWR ratings we have shown above, one can see the 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 major segments Asset Intelligence & Tracking and Enterprise Visibility & Mobility. It offers mobile computing, data capture, radio frequency identification (RFID), stationary industrial scanning and machine vision solutions, services and workflow optimization.
ZBRA’s adjusted net sales increased 11.7% year-over-year to $1.47 billion for the fiscal fourth quarter ended Dec. 31. Adjusted EBITDA increased 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 same period a year ago to $245 million and $4.54.
Street’s FY2022 EPS estimate of $19.82 indicates a 7.4% year-over-year improvement. Similarly, Street’s revenue estimate of $5.95 billion for the same year reflects a 5.6% increase over the previous year. ZBRA has exceeded consensus EPS estimates in each of the past four quarters, which is impressive.
The stock gained slightly intraday to close yesterday’s trading session at $394.28.
It’s no surprise that ZBRA has an overall rating of B, which translates to Buy in our POWR rating system.
ZBRA has a B rating for Sentiment, consistent with its favorable sentiment for analysts.
The stock also has a quality rating of B. This is consistent with its 12-month ROE, ROTC and ROA of 32.64%, 16.33% and 13.47%, which are 348.27% higher, 241.38% and 296.55% to their respective industry averages.
It is ranked No. 23 out of the 76 stocks in the Industrial machinery industry. The industry is rated B.
Click here to see additional POWR ratings for ZBRA (Growth, Value, Dynamics, and Stability).
TE Connectivity Ltd. (PHONE)
TEL offers connectivity and sensor solutions in various parts of the world. The Company operates through the three major segments of Transportation Solutions; industrial solutions; and communication solutions. He is based in Schaffhausen, Switzerland.
For the first fiscal quarter ended Dec. 24, TEL’s net sales increased 8.4% year-on-year to $3.82 billion. Adjusted earnings from continuing operations and adjusted EPS were $581 million and $1.76, up 19.1% and 19.7% from the same period a year ago.
Analysts expect TEL’s EPS to grow 9.7% year-over-year to $7.14 in fiscal 2022. Similarly, Street expects revenues for the same year increased by 5.5% over the previous year to reach $15.75 billion. Additionally, TEL has beaten consensus EPS estimates in three of the past four quarters.
The stock gained 0.9% intraday to close yesterday’s trading session at $122.
This promising outlook is reflected in TEL’s POWR rankings. The stock has an overall rating of B, which is equivalent to Buy in our proprietary rating system.
TEL has a value rating of B. This is consistent with its forward P/E multiple of 17.58, 28.1% below the industry average of 24.44. In terms of Price/Book futures, the stock is trading at 3.42x, 26.5% below the industry average of 4.66x. The stock also has a stability rating of B.
TEL is ranked No. 11 out of 38 stocks in the Industrial – Manufacturing industry. The industry is rated B.
To view 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, the CSCO is down -17.10%, compared to a -5.94% rise in the benchmark S&P 500 over the same period.
About the Author: Anushka Dutta
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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