Technological advances over the years have led to more and more devices being interconnected and becoming an ‘Internet of Things’, creating a web of connected devices. Playing on these Internet of Things stocks can be hard to see right away.
International business machines (NYSE:IBM) describes the Internet of Things (IoT) as “the concept of connecting any device (as 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 – which all collect and share data.”
As a result of increased connectivity, there are huge amounts of data that need to be collected and analyzed, as well as the need for a faster internet infrastructure.
In fact, there is already an entire domain of technology stocks benefiting 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 purchases.
IoT is considered a major catalyst of the fourth industrial revolution, or “an amalgamation of advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing and other technologies,” according to the report. until Salesforce.com (NYSE:CRM).
Aside from computers and smartphones, TVs, major appliances, and even light bulbs are increasingly connected online.
Internet of Things stocks heat up as the market does predicted to grow at 25.4% compound annual growth rate (CAGR) and reach $1.85 trillion by 2028.
As the global semiconductor shortage continues to hamper the growth of the IoT industry, a $250 billion bipartisan venture production and technology account is intended to overcome such drawbacks.
That said, today’s article introduces three Internet of Things stocks to buy in the last quarter of the year:
- Cisco Systems (NASDAQ:CSCO)
- Emerson Electric (NYSE:EMR)
- Honeywell International (NASDAQ:THEY)
Internet of Things Stocks: Cisco Systems (CSCO)
52 week range: $35.28 – $60.27
Dividend Yield: 2.69%
Cisco Systems is the world’s leading provider of enterprise networking solutions.
Through infrastructure platforms, Cisco focuses on hardware and software products for switching, data center, routing and wireless applications. The application portfolio includes analytics, collaboration and IoT products.
Cisco released Q4 fiscal results 2021 mid-August. Revenue came in at $13.1 billion, up 8% year-over-year (YOY).
Non-GAAP net income increased 5% year over year to $3.6 billion, or 84 cents per diluted share, compared to $3.4 billion, or 80 cents per diluted share, in the same period last year. Cash and equivalents ended the quarter at $9.9 billion.
“We continue to see great momentum in our business as clients look to modernize their organizations for agility and resilience,” commented CEO Chuck Robbins of the results. “Demand for Cisco technology is strong and our Q4 performance marks the highest growth in product orders in more than a decade.”
Investing in CSCO stocks is a safe way to gain exposure to IoT without taking major risks. Its products are the backbone of the Internet, so the company is well positioned to take advantage of the rapid growth of IoT devices.
Cisco wants to use its dominant market share in network hardware and software to cross-sell more services. Management predicts revenue will grow at a CAGR of 5% to 7% between fiscal year 2021 and 2025, up from 1.5% between 2017 and 2021.
CSCO shares are hovering at $55, gaining 23% year-to-date (YTD). The board of directors plans to return at least 50% of its free cash flow to shareholders through repurchases and dividends.
CSCO shares trade at 16x future earnings and 4.7x current revenue. Interested readers might consider a possible drop to $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 provides automation and software solutions for industrial and residential markets.
In 2018 it was voted “Industrial IoT Company of the Year”. The group reports sales in two main segments: Automation Solutions and Commercial & Residential Solutions.
Emerson issued Q3 results early August. Net sales increased 20% year-over-year to $4.7 billion. Adjusted earnings before interest and tax were $863 million, up from $597 million in the prior year.
The company reported adjusted earnings per share of $1.09, up 36% year over year. Free cash flow for the quarter was $977 million.
“We are pleased with our results this quarter as accelerated top-line growth in key end markets coupled with strong execution from operations helped us deliver exceptional financial results,” said CEO Lal Karsanbhai after 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 leverage Emerson’s digital ecosystem platform Plantweb for large-scale polypropylene recycling.
Emerson’s data management software, Plantweb Optics Data Lake, helps enterprises analyze data to gain valuable insights. Given the rising demand for advanced analytics applications, EMR’s latest software is poised to expand its customer base.
Right now, EMR stock is around $95, up over 35% over the past year and 17% YTD. The shares are trading at 21x future earnings and 3.2x current sales. A possible drop towards $90 or even lower would improve the margin of safety.
Internet of Things stocks: Honeywell International (THEY)
52 week range: $159.42 – $236.86
Dividend Yield: 1.82%
Our latest Internet of Things stock is multi-industrial giant Honeywell International.
The company’s various activities range from aerospace systems to advanced materials, construction technologies and process automation and others.
Honeywell is becoming an important name in industrial IoT (IIoT). Management claims, “Honeywell provides the most complete set of secure, IIoT-ready solutions for all elements of the industrial internet.”
Management released Q2 results end of July. Revenue grew 18% year-over-year 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 revenue 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,” said CEO Darius Adamczyk.
Analysts emphasize that the company is becoming a “software industrial” through its investments in software development and IoT technology. The company also focuses on “breakthrough initiatives,” including robotics and quantum computing.
HON shares are hovering at $215, up just 1% YTD, but 23% over the past year. Shares have a reasonable valuation and trade at 23.5x future earnings and 4.5x lagging sales.
At the date of publication, Tezcan Gecgil had no (direct or indirect) positions in the securities referred to in this article.
Tezcan Gecgil, Ph.D., has spent more than two decades working in wealth management in the US and UK. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) exam. Her passion is trading options based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for monetization.