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The line between man and machine is getting blurrier, and it's making tech investors wealthier.
Now is the time to look at the best Internet of Things stocks for 2021.
The Internet of Things (IoT) describes the growing connectivity of everyday objects via the Internet. Wearables and other smart mobile devices can fall into this category, but the network of IoT devices is expanding beyond what we could have imagined years ago.
You're likely reading from a mobile device. I'm wearing wireless "AirPods" from Apple Inc. (NASDAQ: AAPL). This is a microscopic representation of an IoT market poised to reach $1.2 trillion by 2025.
According to Mordor Intelligence, it was just $690 billion in 2019. That's about 73% market growth over six years.
That's amazing when you consider the presence of IoT today. We are already beyond anything we could have imagined at the start of the new millennium.
A Fitbit recently told someone how many more steps they needed for the day.
A home security system just notified someone of a break-in via android app - the cops showed up just in time.
A paraplegic received Bluetooth-powered prosthetic legs, and a deaf baby heard its first sound.
These are just a few life-altering developments that can be credited to IoT. They're not far-off projections - they are being realized today.
Now, imagine what five years down the line will look like. What about 10 years?
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The Internet of Things is a growing, intricate web of tech companies, large and small. And it's going to pay off big time for many tech investors.
Considering IoT as a "market" on its own can be baffling, with so many different strains of tech involved. But there will also be a handful of companies at the center of this brave new world.
We're going to show you a few of those that will win the most today.
The top IoT stocks here are leaders in what they provide. Before we get into them, let's talk about the emerging sectors creating these opportunities.
Here is what's powering the best Internet Stocks to buy as we stride into the next decade of tech.
What's Moving IoT Stocks in 2021
Most of us couldn't "opt out" of IoT if we wanted to. Maybe we're paying down a car from Tesla Inc. (NASDAQ: TSLA) or our livelihoods are tethered to the web.
At the very least, we like to stay informed and in-step with our friends and family.
This on its own would have been enough to propel IoT devices and artificial intelligence, machine learning and the cloud. But 2020 gave us a massive, unforeseen technology catalyst that could send IoT stocks soaring much sooner.
People sought other means to congregate when the COVID-19 pandemic disrupted their lives. Emerging technologies quickly stepped in to facilitate that.
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Work, doctor visits, church, and even happy hour karaoke became dependent on IoT to function.
Now that technological transformation has accelerated, we're looking at even greater, sweeping changes taking place in lives, homes, and institutions across the world.
New markets we've seen pop up are going to continue to bloom and grow exponentially. Here's a way to think about IoT and its different sectors as they stand right now.
The way you shop is poised to dramatically change over the next few years. That's why Internet of Things stocks are poised to boom in the retail sector.
While most brick-and-mortar stores had little trouble switching to online delivery in a pandemic, essentials like grocery and department stores have needed to be more resilient and minimize human contact.
Shield went up, and self-checkout lines got longer. But there is still a ways to go for these stores to optimize their processes, getting customers in and out as efficiently as possible.
Tech investors may want to keep an eye out for software companies delivering software solutions for self-checkout and pay systems at retail chains. These will be increasingly handy in the years to come.
But even more than that, stores are beginning to implement "smart shelves" to manage their inventory. In fact, Kroger Co. (NYSE: KR), one of the largest supermarket chains in the United States, tested over 2,000 of these as early as 2016.
These can help monitor inventory at the stores. But it can also enable customers to make digital shopping lists through a store app, and their phone will vibrate when a product is nearby.
Telemedicine saw increased investment during the pandemic, but this is a small tip of the iceberg compared to the full transformation of healthcare by Internet of Things. There is an ever-expanding suite of devices on the market to improve the lives of patients. We've already alluded to prosthetics and hearing aids, but the full extent of devices like these is yet to be realized.
Tesla CEO Elon Musk announced his company is working on an implantable device called Neuralink, which could connect to mobile devices and serve a variety of purposes. It could also potentially remedy neurological disorders or rewire the brain for better limb functionality. The potential here is endless.
We also wrote a while back about Bluetooth-powered pacemakers that can be monitored via phone app.
Apple CEO Tim Cook has also been quoted as saying healthcare will be the company's "greatest contribution to mankind." We are yet to see what that entails, but we know the company has been working toward establishing its own clinics, and this company will also no doubt continue to play an important role in the Internet of Things space, already with smart watches, speakers, home assistants, and more.
The latest Apple Watch can check for unusually high heart rate and even an irregular rhythm. Patients can nip these problems in the bud sooner with a timely doctor visit.
Another exciting IoT trend is bigger than a smart device, smart home, or smart car. You can't talk about IoT without mentioning smart cities.
Cities of the future are expected to run on an Internet managing complex transportation networks, water levels, electrical grids, energy consumption, and supply chains to optimize virtually everything about a city.
This has been talked about much over the years, but similar to how COVID-19 accelerates the push for smarter checkout lines, we're going to see more investment in smarter cityscapes in the next year and beyond.
The industries powering these movements will be 5G, IoT, construction, energy, and waste management. If you want to cut to the root of a smart city, though, data storage could be the real winner.
Smart homes, smart stores, smart busses, trains, and cars together will require trillions of terabytes of information to run together. Smart cars, for example, will need to be in constant communication with data centers to navigate, report issues with the vehicle, and much more. Traffic management systems will have to adapt to work in sync with new driving technologies, another massive channel of data in the smart city.
NVDIA Corp. (NASDAQ: NVDA) has been one of the main companies on the ground floor of smart city development. The company has set up a "metropolis" platform to help companies start building their smart city ecosystems in the cloud.
Of course, it is still only a piece of a massive puzzle. Here are the top Internet of Things stocks you should watch for in the next year if you want to take advantage of this growing industry...
Best Internet of Things Stocks
The speed of computing matters more as we begin to rely on an Internet of things. We need lower latency in our day-to-day tasks - especially if those tasks include driving or performing heart surgery.
Fastly Inc. (NYSE: FSLY) is an "edge computing" service, which enables data to be processed in a cloud closer to where you are operating, rather than at a data center in some other state.
This helps improve the speed of websites - which is Fastly's main market. But it could also benefit an increasing number of vital applications down the road.
Fastly stock shot up from $12 to a peak of $120 between March and October. It's at a nice $75 discount right now.
As the number of websites and applications increases, this stock will be in demand. Revenue has more than doubled in the last four years, going from $104 million to $267 million.
The company is getting into the black this year amid strong revenue growth. What people don't realize is the longevity in the growth, though.
While these services fight for the most eyes in the streaming market, they are all lacking in the "thing" department, compared to this stock. Roku Inc. (NASDAQ: ROKU) is out of the box (literally), and that gives it a leg up.
This is a device that provides over-the-top (OTT) media, which bypasses the whole streaming battle by simply facilitating all of these streaming services from one device.
Users can connect to Apple TV+, Netflix, Amazon, and many other streamers via the device. This means, no matter how many people sign up for these major content companies, Roku doesn't lose.
In fact, the more content these carriers produce, the more content Roku can host.
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The company already controls around 40% of the OTT market, significantly ahead of Amazon's 24% and the 18% claimed by Alphabet Inc. (NASDAQ: GOOGL).
Part of what sets Roku apart from its competitors is the low price of its device. Since the platform is supported by ads, it can sell for much cheaper. A Roku costs under $40, while an Apple TV is more than triple that.
This stock has gone from $130 to $230 in a year. COVID-19 lockdowns surely helped the company's top line. But the future growth of OTT streaming shows promise regardless.
Cisco Systems Inc. (NADSAQ: CSCO) is a $166 billion market cap enterprise tech conglomerate. It provides other large companies with networking hardware to connect different communication devices.
The company casts a relatively wide net with its products. And its tools will be integral to a new Internet of Things landscape.
One specific IoT initiative is called "Cisco Kinetic." This is software that is supposed to manage tons of data flowing between different IoT devices.
This is the first place to look if you're interested in stocks whose prices are positively correlated with the number of "things" on the Internet.
Because Cisco's technologies are so wide-ranging, however, "Kinetic" doesn't even cover everything they'll be working on for IoT. The company provides IT platforms and security solutions to companies around the world.
Those security solutions took in 6% more revenue year-over-year in Cisco's latest quarterly report.
Cisco has a healthy balance sheet - total assets come out to $94 billion, with liabilities at $56 billion. Its operating cash flow is over $15 billion.
The stock trades for $39 right now. Within a year, it could hit $55, a solid 41% gain. And that's pennies compared to where it's headed in the next five, 10 years.
2021 may be the year to grab it.
We've talked about how retail will be transformed by IoT. Well, this IoT stock is one of the prime suspects behind the shift.
Impinj makes the solutions that enable retailers and manufacturers to track products. It would also enable "smart shelf" technology when that takes off.
The specific tool at the center here is "radio frequency identification" (RFID). Many think of this as tiny chips connecting to GPS and cloud inventory systems to help companies track their items (you might even track your pet with an RFID chip).
Of course, RFID is not merely a chip, but an ecosystem of hardware and software. The system includes scanners and other tools and software that help it run. Impinj provides it all.
It serves brands like Cisco (another IoT prospect), Coca-Cola Co. (NYSE: KO), and Topgolf.
The more things there are in the world that need to connect via RFID, the greater Impinj's chance at success. By its estimates, only 0.1% of the total addressable RFID market is being reached.
Impinj stock trades for just $34 right now, an open door to the Internet of Things investing world.
Orion Energy Systems
Here's another important smart cities component that should see some daylight in the ongoing digital transformation.
Orion Energy Systems Inc. (NASDAQ: OESX) makes smart LED lights for enterprises, indoor and outdoor.
Its lights have sensors to turn on and off, as well as turnkey systems that manage energy usage to help enterprises manage and minimize their electricity bills. Orion software can also connect with an enterprise's legacy solution.
Orion is a gem of an Internet of Things stock, as it addresses both the digital trend toward "smart" objects as well as a universal preference for more sustainable energy solutions.
The company went from negative cash flow to $20 million between March 2019 and March 2020. Its balance sheet looks good with $72 million in assets versus $41 million in liabilities.
The stock price is currently $8, but some analysts expect it to hit $15 over the next 12 months. That's 87% growth.
This $246 million market cap stock could see a massive spurt in the coming years.
Beyond networks and data storage, if you're interested in capturing profits from the actual "things" on the Internet themselves, you might consider a company like Alarm.com Holdings Inc. (NASDAQ: ALRM).
This Internet of Things stock comes in at just $3.4 billion market cap. It's not a Cisco, but it still covers a highly desirable niche expected to catch on in the IoT world.
Alarm.com, as you might guess by the name, is nabbing at the smart home world - specifically in home security. The company sells a line of home security devices like cameras and locks, as well as the cloud software to connect them all. Users can even connect their smartphones to the cameras to see what's going on.
This company is aiming to be the home security solution. And it's doing a great job of it. The software-as-a-service model plays a big role in this, generating continuous padding for its bottom line.
In its last quarterly report, the company increased revenue for SaaS subscriptions by 17.9% year over year, from $84.9 million to $100.1 million. Likewise, net income was up 102%, from $17 million to $36 million.
The company also raised its total cash by 107% from the same quarter. This will help it continue to innovate and build on its technologies and other offerings.
Today, the stock trades for $70. But as the company projects an annual growth rate for the global home security industry starting at 24%, the sky is the limit for Alarm.com.
Also in the business of "things," Dexcom Inc. (NASDAQ: DXCM) is a major player in healthcare IoT. This company provides glucose monitoring tools for diabetics.
It pitches an app-based tool to monitor blood sugar levels - for the first time with "zero fingersticks."
Instead of having your finger pricked up to seven times a day, Dexcom's "continuous glucose monitoring system" involves an implantable sensor that connects to your smart phone or watch and lets you see your levels at any moment.
In its last quarterly report, Dexcom posted 26% year-over-year revenue growth, from $396 million to $501 million. As Dexcom expands and forms partnerships with more individuals and healthcare facilities, that's sure to tick higher.
Over 100 million Americans have either diabetes or pre-diabetes today, which makes an ample IoT market for this company to penetrate.
The average analyst projection shows DXCM could pop 60% in the next year, from $348 to $540.
Tesla Inc. (NASDAQ: TSLA) is as much an Internet of Things stock as any. With the advent of self-driving vehicles, this company is a pioneer of data-driven transportation.
The Tesla stock had a monster showing in 2020, going from $86 to as high as $498, a 479% jump, in eight months, despite lockdowns.
This could have been part of the reason Tesla decided to split its stock and give a greater pool of investors access to buy.
Revenue has exploded since 2016, from $7 billion to $28 billion, or growth of 300%. It just became profitable this year, at $556 million.
There is still worry among analysts about Tesla's volatility. But it's proven them wrong this year. There's nothing to suggest it wouldn't do the same in 2021.
We are yet to see the full extent of what its autonomous vehicles can do. With time, artificial intelligence and machine learning will have improved drastically.
Its line of vehicles has also been expanding. In addition to the Model S, Model 3, Model X, and Model Y, it's delivering the new high-end Roadster.
Right now, the Tesla stock trades for $413. It's on a nice dip if we consider one analyst estimate of $774 over the next 12 months, an 87% target.
Lastly, you can't talk about IoT without mentioning Apple Inc. (NASDAQ: AAPL).
The iPhone comprises most people's conception of "smartphones." And the company has done a tremendous job expanding beyond phones into an "ecosystem" of mobile devices with smart watches, tablets, AirPods, and more.
Next to Amazon, Apple is a prime contender for normalizing the "smart home," where a single brand permeates an entire house.
But the company has plans to expand far beyond the household in the future, and it involves the Internet of Things...
The COVID-19 outbreak shed light on the importance of telehealth capacity. An Internet of Things for the healthcare industry proved useful for many when hospitals were backed up.
Apple has partnered with various university medical centers, including Duke and Stanford, to pioneer its Apple Health Records product. This is meant to integrate various Apple devices to monitor patients and keep track of their health in real time.
Apple's healthcare arm is due to expand in the future. And the company is still going strong with its other products.
Apple stock is up to $118 from $79 per share at the start of the year. Some analysts think it could hit $150 in 12 months, a 27% gain.
In any case, Apple is a long-term buy and hold.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.