Please ensure Javascript is enabled for purposes of website accessibility

1 Stock for Investing in the Internet of Things

By Keith Noonan, Tim Brugger, and Daniel B. Kline - Updated Feb 7, 2018 at 10:34AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Internet of Things could change everything (and make investors rich along the way).

Here's what to watch in IoT in 2018.

With the development of smart homes, smart cars, and smart cities, the word "smart" is quickly becoming shorthand for Internet of Things connectivity -- and for good reason. The Internet of Things will enable functionality between seemingly disparate devices and use the resulting data to personalize user experiences and create a truly intelligent technological ecosystem that reshapes consumer and enterprise markets.

With research firm Gartner estimating that the number of IoT-connected devices will grow 30% in 2016, there's already strong momentum building behind the pending revolution, and certain companies are positioned to see major benefits.

Artist's rendering of Internet-connected things throughout a city.

Image source: Getty Images.

To get a survey of potential IoT winners, we asked three Motley Fool contributors to spotlight a pick for a top Internet of Things stock to invest in. Read on to learn which companies could benefit from the inter-device connectivity trend that will change everything from tech to consumer goods and healthcare.  

Daniel B. Kline: In his keynote address at Deutsche Bank's 2016 Media, Internet, & Telecom Conference on March 8, Verizon (VZ 1.75%) CFO Fran Shammo admitted that the wireless phone business was no longer a growth opportunity. But while he doesn't expect to attract a lot more phone customers, he believes strongly that the Internet of Things will bring big opportunity for his company.

"When you think about the growth opportunities around consumption of video in that environment, you think about IoT, and smart cities, and all the applications that are coming which have to run over wireless networks ... there's still a lot of potential growth there," he said.

Basically, Shammo told the audience that in the next few years, every device will be connected, and that will require network capacity. Because Verizon has invested heavily in network infrastructure, he believes his company should be able to capitalize.

"The network is still how we build our brand ... and we continue to believe the network will be a differentiator for us going forward," he said.

Shammo is right. Verizon may not make IoT devices or even sell them, but it should clean up by selling access to its network. It's the same model phone companies used when the home security business first launched. Alarms required a phone line, albeit a little-used one, and the companies were happy to sell them -- making money as an infrastructure provider.

It may be a an old-school model, but it's an effective one that makes Verizon a de facto IoT player.

Tim BruggerSynaptics (SYNA -3.38%) followers may think it's too late to get on board the train. Thanks in part to yet another rumor of a buyout by a China-based investment group earlier this year, the maker of fingerprint sensors, mobile touchscreens, and related technologies is up over 20% in value year to date. Why did Synaptics warrant an acquisition offer of $110 a share when it was trading at just $62.05 at the time? Making forays into a key IoT market is a big reason why.

One of the fastest growth areas within IoT, smart cars, may also prove to be the first that enjoys widespread adoption. A recent study suggests that new-car buyers are more concerned with a car's infotainment system, the technology behind it, and seamless integration with smartphones than actual driving performance. And nearly 40% of the drivers asked said they'd change auto manufacturers if their first choice didn't offer a "smart" infotainment system.

Strange as consumers' changing habits may sound to avid drivers, it's music to the ears of Synaptics shareholders. Synaptics offers a suite of automotive-specific touch, display, and biometric solutions, which are already included in several of the world's largest automakers.

Nearly 90% of Synaptics revenue was mobile-related last quarter, and consumers have spoken: Our cars are quickly becoming the ultimate mobile device, and Synaptics is poised to go along for the ride. Synaptics' forward price-to-earnings ratio of 26 may scare some potential investors, but it shouldn't. Looking even further ahead, Synaptics is trading at a mere 12 times future earnings, and it will continue to grow right along with consumers' love for smart cars.

Keith Noonan: AT&T (T 1.67%) has developed a reputation as a low-risk, low-growth stock backed by its strong position in wireless and a great dividend -- and it's true that Big Blue has recently held strong while the broader tech sector has dipped -- but the company's outlook is more exciting than its safe reputation suggests. AT&T is looking to the Internet of Things as a growth avenue that could branch its business into new spaces while also improving its wireless stronghold, and the company could play a formative role in the IoT tech push.

The mobile device will likely be at the center of the Internet of Things transition, and AT&T's wireless networks are on track to see data booms that create new demand for the company's storage, processing, and interface capabilities at the consumer and industrial levels. The company already counts more than 26 million IoT devices connected on its North American networks, and the company is in the midst of developing and testing 5G technologies that will pave the way for the next generation of IoT innovations.

AT&T is partnering with a range of companies, including Ericsson, Intel, and General Electric, to test and expand the IoT capabilities of its networks, and the company is also indicating that its DirecTV wing and related wireless broadband tests have already proved to be assets in developing and rolling out 5G technologies. With estimates that 5G could deliver a hundredfold increase over top 4G speeds and a thousandfold increase in data load, network advances could be the key to the IoT revolution and position AT&T as a major beneficiary of inter-device connectivity. 

Priced at just 13 times projections for forward earnings and packing a dividend yield of roughly 5% in addition to a formative position in the big connectivity push, AT&T looks to be a top Internet of Things stock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$21.31 (1.67%) $0.35
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$51.64 (1.75%) $0.89
Synaptics Incorporated Stock Quote
Synaptics Incorporated
$114.06 (-3.38%) $-3.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.