There are a lot of products we use every day and don't even think about. Oil and gas, mobile phones, food, and many other products are taken for granted, but some of the companies behind them shouldn't be an afterthought for investors.
We asked three Motley Fool contributors what they see as the hidden companies with a lot of value for investors -- and Skyworks Solutions (NASDAQ:SWKS), Kinder Morgan (NYSE:KMI), and 3M (NYSE:MMM) rose to the top. Here's why.
It's what's inside that matters
Todd Campbell (Skyworks Solutions): There are over 3 billion (yes, billion) smartphone users on the planet, so if you're reading this article on your mobile device, you're not alone. What you might not realize, however, is that the technology responsible for connecting your device to the internet may be made by Skyworks -- especially if you're using a product made by Apple (NASDAQ:AAPL).
Skyworks markets semiconductor chips that are crucial to maintaining stable, fast, and power-saving connectivity. Its products, such as amplifiers and filters, are used in our mobile devices, internet-connected products in our homes, and in our vehicles.
It gets 73% of its revenue from chips used in mobile devices. And while it works with many of the large manufacturers, Apple accounts for about 50% of its revenue (Samsung and Huawei are big customers, too). Internet-of-Things (IoT) devices, autos, and other applications account for 27% of sales.
Its close ties to Apple have been a mixed blessing lately. After the iPhone maker disappointed investors with a cautious outlook following weak demand in China, Skyworks shares took it on the chin. However, Apple's still a dominant force with significant brand loyalty, and weak demand for its products has historically been short-lived.
Even if this time is different, there's reason to be optimistic about Skyworks' future. An increasingly larger share of its sales are coming from IoT, and that's likely to continue as smart homes become more common. Demand for smarter cars provides a similar tailwind for the company.
However, it's the fast-approaching deployment of 5G networks that's the big reason to think better days are ahead at Skyworks. We're only in the infancy of rolling out 5G networks, but as they become more available, upgrading to devices packed with Skyworks chips could cause its shares to soar.
This company keeps you energized
Matt DiLallo (Kinder Morgan): North American energy infrastructure giant Kinder Morgan currently transports 40% of the natural gas consumed in the U.S. each day. Because of that, every time the heat in your house kicks on or you turn on your gas stove, the chances are pretty good that at some point Kinder Morgan moved that gas toward your home. That's because the company's 70,000 miles of gas pipelines serve as a key bridge to move natural gas from wells to end users.
Another way Kinder Morgan likely impacts your life is through its refined-products transportation business, where it's the North American leader. The company currently transports 1.7 million barrels of refined products like gasoline, diesel, and jet fuel each day through its 6,900 miles of pipeline to ensure our economy has the fuel it needs to keep moving.
One of the important characteristics of these pipelines and related assets is that they generate steady cash flow. That's because demand for energy continues to rise, which keeps the company's pipes filled to capacity while opening the door for it to build new ones. The company currently has $5.7 billion of expansions under construction and more under development, which position it to grow cash flow at a healthy pace over the coming years.
That steadily rising cash flow stream helps support the company's 4%-yielding dividend, which it intends to increase 25% this year and next. That dividend growth makes Kinder Morgan an excellent stock for those who want to earn some additional income.
The everywhere company
Travis Hoium (3M): 3M is known for products like Scotch tape, Post-it notes, and ScotchBlue painter's tape. But that just scratches the surface of what the company does. 3M makes films that go into laptops and smartphones, products that are crucial to the oil and gas industry, and medical devices. In most of these cases, 3M isn't the brand name that customers interact with, but it's a key supplier to manufacturing products. That's why you may not even know how many times a day you're using 3M products.
3M has been able to translate its position as a preferred supplier into strong revenue and gross margins, which ultimately drives profitability long term. The company isn't a great growth story, but if you're looking for stable income from a 2.8% dividend yield, this is the kind of stock that will pay dividends for decades to come.
What I like most about the mostly unknown breadth of 3M's products is that they create an incredibly diverse business. 3M can generate core technologies in films, adhesives, or abrasives and turn those capabilities into a growing array of products serving multiple markets. That's an enviable position for a product company to be in, and it will drive profitable growth for years to come.
Something for everyone
Skyworks, Kinder Morgan, and 3M serve very different markets, but they're all enabling products we use every day. We don't even know we rely on them -- but since we do, they have a competitive moat a lot of competitors would envy.