We’ve commented on the “Internet of Things” (IoT) several times in the past, and have suggested ways that investors could approach the theme. Barron’s recently highlighted some of the same ideas that we have suggested over the past several years.
Although many global stock markets are currently in a correction mode, we continue to believe that U.S. stocks are supported by bullish fundamentals, and will be for some time — better GDP growth than the rest of the developed world, good corporate profits, and continued accommodative monetary policy from the Federal Reserve.
With that basically positive backdrop, we anticipate that when the present correction has run its course, the bull market will resume. When it does, some IoT stocks may be attractive to investors who hesitated to buy until their prices experienced a healthy correction.
What’s On Your IoT Buy List?
Barron’s identifies several sub-themes in the IoT and identifies some potential winners. We mention them here as examples; we do not recommend these specific stocks for purchase at this time.
The real growth in the IoT will come from the creation of sensors so cheap that they can be disposable. Norwegian company Thin Film Electronics ASA (THIN in Oslo) has developed a technology which prints sensors onto plastic films, which can then be incorporated into packaging materials. Manufacturers and retailers could use data generated by these sensors in countless ways to manage and improve the efficiency of their supply chain. Eventually, there will likely be trillions of such throw-away sensors being manufactured each year.
Besides disruptive startups, there are also long-established hardware manufacturers such as Intel ($INTC) and Cisco ($CSCO) who are crafting offerings dedicated to the IoT, and specifically to the shunting of data from networked “things” to the cloud.
And finally, there are software companies who are setting out to make platforms that will permit the analysis of the data generated by the IoT. Splunk ($SPLK) is one of these — and like many cloud- and IoT-related software companies, it trades at a very rich valuation, event after recent market declines. SPLK captures and analyzes machine-generated data, making those data analytics available to customers through a web interface.
The value proposition for customers is greater efficiency — whether gained from web analytics, building power monitoring, or infrastructure analysis.
Investment implications: Stocks that will give investors exposure to the theme of the Internet of Things are typically expensive, and while we have explored the theme many times, we have always counseled investors to wait for a correction before they buy. We suggest that investors revisit the IoT as they review their buy list for the end of the current correction.