In any discussion of Qualcomm (NASDAQ:QCOM) these days, there's no escaping the subject of its legal troubles. The antitrust limelight shone on the company again last month after it was slapped with another fine, this one from the E.U.'s European Commission. Qualcomm's battles with regulators and customers are frustrating because they distract from the strides it's making in new growth opportunities including 5G, and the Internet of Things (IoT).

Up-and-coming Sierra Wireless (NASDAQ:SWIR) is already knee-deep in IoT, and as it demonstrated last quarter, it's working. With a market capitalization of just $631 million, Sierra may get overlooked by many investors. That's actually a good thing for a couple of reasons. Its IoT focus offers it limitless opportunities, as do Qualcomm's product diversification initiatives. So: Which is the better buy?

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The case for Qualcomm

Unfortunately for Qualcomm shareholders, fiscal 2018's first quarter ended as the prior quarter did: With a massive fine, in this case, a $1.2 billion fine imposed by the European Union's competition regulator. Qualcomm intends to provide a "financial guarantee" as it battles the EU in court. Like other tech giants, Qualcomm's numbers took a temporary boost from the U.S. tax overhaul.

Its conflicts with Apple once again took a toll, but there were also several bright spots for Qualcomm. Excluding one-time items, total revenue of $6.04 billion was a 1% improvement year over year. As expected, earnings per share declined (thank you, Apple) 18% to $0.98 a share.

Qualcomm's adjusted earnings are nothing to brag about, but there's a caveat. The highly profitable licensing unit's sales were just $1.3 billion last quarter, a 28% decline. However, as Qualcomm pointed out, a year ago, licensing revenue from Apple totaled $740 million. The iPhone maker has been withholding its royalty payments: If you add that figure back into the mix, Qualcomm's QTL division revenue would actually have risen 13% to $2.04 billion.

First-quarter results were better than expected, but questions still loom. Broadcom's buyout bid for the company is still pending, as is Qualcomm's own long-standing offer for NXP Semiconductors. There are also concerns about the slowing smartphone market in China, a nation whose sales are a key growth driver for the company. But, like its legal troubles, the China situation is likely a near-term hiccup, not a long-term problem.

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Image source: Getty Images.

The case for Sierra Wireless

Growth investors in search of a pure-play IoT stock would be hard-pressed to find a better alternative than Sierra Wireless. The fact that its total revenue climbed 13% to $173.24 million last quarter was a feather in its cap. Better still was the way Sierra improved its top line -- with growth in each of its three divisions.

Sales to original equipment manufacturers (OEM), Sierra's largest business, climbed 8.4% to $138.5 million, followed by a 39% jump in enterprise solution sales of $26.3 million. Sierra's IoT product offerings also include cloud and connectivity solutions. In the smallish, but fast-growing, cloud and IoT connectivity segment, revenue was $8.4 million, up 23% compared to a year ago.

Due in part to increased product development spending, operating expenses rose 16% last quarter to $57.54 million. However, excluding a one-time charge of $2 million for Sierra's acquisition of IoT provider Numerex, and a $600,000 rise in amortization expenses, the increase in overhead would have been a more modest 11%.

Sierra's gross margins improved an impressive 17% last quarter, more than offsetting its higher expenses. That, along with Sierra's revenue growth, boosted EPS to $0.04, a far better result than the loss of $0.06 a share a year ago. For bargain hunters, Sierra is valued well below its peers by virtually all metrics, including share price that's a meager 16.7 times forward earnings.

The better buy is...

A year from now, Qualcomm shareholders will likely look back in relief that its worst days are over. Until then, the company continues to expand its product portfolio to take advantage of the limitless opportunities IoT, 5G, and similar markets represent. Oh, and let's not forget that while they wait, shareholders will enjoy a dividend that currently yields 3.35%.

The relatively small size that leads many investors to miss Sierra may be one reason its stock is such a value, but it's a positive for another reason. Given the massiveness of the IoT market already -- let alone where it's headed -- Sierra won't need to dominate connectivity, OEM, or enterprise segments to dramatically move its revenue needle. Because of those things, as well as its recent performance and slow-but-steady revenue diversification, Sierra Wireless gets the nod as the better stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.