Please ensure Javascript is enabled for purposes of website accessibility

3 Internet of Things Stocks You're Overlooking

By Chris Neiger - Updated Oct 3, 2016 at 10:56AM

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

Some of these connectivity tech stocks don't look good now, but you might be missing their potential with the IoT only a few years away from really hitting its stride.

This article was updated on Oct. 4, 2016. It was originally published on April 9, 2016.

Internet of Things (IoT) stocks can often be tricky companies to pin down. That's because even though the IoT is already here, its full potential still hasn't remotely been realized. And that's left some investors leery of IoT stocks. 

But the IoT's potential means that some of today's poor-performing tech companies could turn into major winners down the road.

Let's take a look at three stocks that still have lots of time to benefit from the ubiquitous connectivity revolution.

Ambarella

If you've been keeping up with the action-camera market -- and specifically GoPro's stock -- then you've likely heard of Ambarella (AMBA 0.25%). The company provides the video-processing semiconductors for GoPro's cameras, which has been both a good and bad thing at times.

Ambarella's gets about 30% of its total revenues from sales of its system-on-a-chip (SoC) to GoPro. Lately, Ambarella's stock price has been pushed up after it beat Wall Street's recent quarterly predictions and, more importantly, the price rose on the hope of strong sales from GoPro's new HERO5 camera. The company's stock price is up nearly 32% year-to-date.

But Ambarella has a lot going for it aside from GoPro. The company makes video-processing tech for drones, security cameras, and automotive cameras -- and these markets are all areas poised for big growth. Body-worn cameras for police officers have become a $1 billion market, automotive cameras are estimated to be an $11 billion market by 2020, and the commercial drone market is estimated to be worth more than $6 billion just four years from now.

Ambarella's fate is still somewhat tied to GoPro right now, but the company has lots of potential to bring in revenue from outside the action-camera market. And if GoPro's new line of products start winning over consumers again then Ambarella could certainly benefit from that as well. 

ORBCOMM

Don't let ORBCOMM's  (ORBC) 1980s-sounding name fool you -- the company is on the forefront of the latest Internet of Things connections. 

ORBCOMM has one of the world's first and only commercial satellite networks for machine-to-machine connections. Its satellites allow industrial, shipping, energy, and utility sector companies to stay in communication with their mobile and fixed connections. For example, Lockheed Martin's aeronautics division uses ORBCOMM's Internet of Things connections and platform to track some of its equipment. 

ORBCOMM's 2015 revenues were up 85%, and the phenomenal growth of the Internet of Things could help push them higher. Cisco Systems estimates that by 2020, there will be 50 billion things connected to the Internet -- and they'll all need connections similar to those ORBCOMM is already providing. Perhaps that's why its stock is up more than 38% since the beginning of the year. 

Sierra Wireless

Sierra Wireless (SWIR -2.42%) has had a series of misses lately, there's no doubt about that. The company saw revenues decline by 1.1% year-over-year in the second quarter and revenue for the company's OEM Solutions unit (where Sierra gets the majority of its revenue) fell by 4% year over year.

But the Internet of Things is just getting started, and Sierra is still a leader in the embedded wireless module space. The company's tech can be found in everything from connected coffeemakers to Tesla Motors' all-electric vehicles.

The wireless embedded hardware and software market is projected to be worth $214 billion by 2020 and Sierra currently has 33% revenue market share in the embedded machine-to-machine (M2M) module business. The company's management recently said that new customer additions in China will grow long-term revenues, but investors will likely have to be patient to see some of those materialize. 

Just as ORBCOMM will benefit from the 50 billion things connected the Intent by that time, so will Sierra Wireless.

Foolish thoughts

Investors shouldn't expect an easy ride for these companies. Sierra and Ambarella will likely have to travel some rocky roads before they start seeing growth again, and ORBCOMM's current growth rate isn't guaranteed to continue. But each of these companies is making significant plays in growing IoT markets, and they're well worth the consideration of investors. 

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

Sierra Wireless, Inc. Stock Quote
Sierra Wireless, Inc.
SWIR
$20.98 (-2.42%) $0.52
Ambarella, Inc. Stock Quote
Ambarella, Inc.
AMBA
$76.45 (0.25%) $0.19
ORBCOMM Inc. Stock Quote
ORBCOMM Inc.
ORBC
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$663.90 (-6.42%) $-45.52
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$42.94 (2.92%) $1.22
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$424.15 (-0.34%) $-1.47
GoPro, Inc. Stock Quote
GoPro, Inc.
GPRO
$6.63 (-0.45%) $0.03

*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 service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

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.