CalAmp (NASDAQ:CAMP) and Cisco (NASDAQ:CSCO) offer investors two different ways to invest in the booming Internet of Things (IoT) market. CalAmp, which has a market cap of about $800 million, provides telematics solutions for the automotive and industrial markets -- helping companies track, analyze, and control cars and machines via its cloud services.

Cisco, which has a market cap of over $200 billion, is the world's leading provider of network routers and ethernet switches. It bundles those hardware products with various software services for enterprise customers, while its subsidiary Meraki specializes in wireless solutions.

A woman touches floating icons in a graphical representation of the Internet of Things.

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CalAmp's stock has rallied about 17% over the past 12 months, but Cisco shares have surged 40%. Let's discuss the reasons Cisco outperformed CalAmp, and see if the former is a better buy than the latter.

How fast are CalAmp and Cisco growing?

CalAmp's revenue rose 4% to $366 million in fiscal 2018 (which ended on Feb. 28). Its telematics revenue rose 10% to $302 million, while its software and subscription revenue grew 3% to $64 million. It finished the year with 730,000 unique subscribers on its cloud and recurring service platforms -- marking 6% growth from a year earlier.

CalAmp's gross margin held steady at 41% for 2017 and 2018, as did its adjusted EBITDA margin of 14%. Its adjusted EBITDA rose 6% to $52 million for the year, as its non-GAAP net income grew 9% to $42 million. Wall Street expects CalAmp's revenue and earnings to rise 6% and 10%, respectively, this year.

Cisco's adjusted revenue (which excludes the sale of its set-top box business) slid 2% in fiscal 2017 (which ended on July 29, 2017), as its net income tumbled 11%. But during the first nine months of fiscal 2018, Cisco's revenue rose 2% to $36.5 billion, supported by 2% growth in product revenues and 1% growth in service revenues. Within that total, its hardware sales stayed sluggish, but its applications revenue rose 10% as its security revenue grew 8%.

During those three quarters, Cisco's gross margin dipped 1 percentage point to 62.2%, mainly due to higher memory costs. However, tighter controls over its operating expenses boosted its non-GAAP net income by 4% to $9.4 billion. For the full year, analysts expect Cisco's revenue to rise 3% and for its earnings to advance 8%.

Why the market favors Cisco over CalAmp

CalAmp is growing faster than Cisco, but it's a much smaller company -- so investors likely weren't impressed by its single-digit growth. CalAmp also remains more vulnerable to escalating trade tensions between the U.S. and China.

The hands of two different people wearing boxing gloves, with the US and China flags. The gloves are touching each other.

Image source: Getty Images.

CalAmp's top customer is industrial equipment giant Caterpillar (NYSE: CAT), which accounted for 12% of its fourth-quarter revenue. Caterpillar remains vulnerable to steel tariffs and retaliatory tariffs from China that could hurt sales of its equipment in both China and the U.S.

CalAmp's auto market is also in the blast zone of a U.S.-China trade war. Companies could be reluctant to purchase fleets of connected vehicles if tariffs cause auto prices to rise. These cyclical issues are overshadowing the long-term growth potential of CalAmp's telematics and cloud services.

Cisco isn't generating much exciting growth, but its diversified business is better insulated from tariffs and trade tensions. The bulls also believe that the company's gradual shift toward higher-growth software services will offset the softer sales of its routers and switches.

But more importantly, Cisco recently repatriated $67 billion of its overseas cash to the U.S. Most of that cash has been earmarked for buybacks, and the rest will likely be spent on dividends and domestic acquisitions. These moves could reduce Cisco's forward valuation, make it a more attractive income stock, and expand its software business.

Cisco and CalAmp both trade at about 15 times forward earnings. However, Cisco pays a forward dividend yield of 3%, while CalAmp has never paid a dividend.

The winner: Cisco

CalAmp still has growth potential, and it remains a lucrative buyout target for bigger companies that want to establish a presence in the telematics market. But for now, Cisco faces fewer near-term headwinds, has better growth catalysts, and pays an attractive dividend. That's why I think Cisco is still a better buy than CalAmp.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends CalAmp. The Motley Fool has a disclosure policy.