As technology advances, we are becoming more and more interested in the idea of home automation. We feel that it would be great to have the lights turn on at a certain time or even have the blinds automatically go up in the morning. This is called the internet of things and we are only on the tip of the iceberg.
Every year it seems as though there is some new way to automate our lives. While I am not going to get into the advantages and disadvantages of automation in this post, I am going to talk about 2 big players in this space.
Both Cisco and Sierra Wireless are in a position to benefit greatly from the internet of things. But one is a better long term play than the other. Which one is it? Continue reading for the analysis of these two companies.
Overview Of Cisco
Cisco (NASDAQ: CSCO) is a tech stalwart. They were around when the tech bubble burst at the turn of the century. The stock took a beating then and even then took a long time to recover. But the company is much healthier now and is looking towards the future.
The business of Cisco is manufacturing routers, switches and other software for internet connectivity. Since you need these devices to automate your home, Cisco sees a new income stream on the horizon.
As a result, in 2016 they purchased Jasper Technologies which will help Cisco with processing and analytics of the internet of things.
They have also partnered with the major automakers to provide high speed data transfer networking technology inside the vehicle.
Recently Cisco reported earnings per share of $0.60 which beat estimates by $0.02. Revenues came in at just shy of $12 billion, which beat estimates by $40 million but was a 0.5% decline compared to last year.
The good news is that Cisco knew this revenue drop was coming but is expected to hit upcoming revenue numbers.
As you can see, Cisco is in a good place to take advantage of the internet of things.
Next up is Sierra Wireless.
Overview Of Sierra Wireless
Sierra Wireless (NASDAQ: SWIR) is closely related to the business of Cisco. They manufacture 2G, 3G, and 4G modules and gateways for internet connectivity.
And as with Cisco, Sierra is being proactive in the internet of things space by purchasing smaller firms to cement their position as a top player in the field.
Over the past few years, here is a sampling of what Sierra has purchased:
- In Motion
- Wireless Maingate
- GlobalTop Technology
By making these acquisistions, Sierra Wireless is positioning itself as a pure play internet of things player, who is able to not only allow for network connections, but also analyze, process and gather data.
In its latest earnings report, revenue came in at $161 million, which beat estimates by $6 million and was an increase of 13% compared to the prior year. Earnings per share were $0.24 which beat estimates by $0.08.
For full year 2017 the outlook is good. Revenue is expected to be up 10% and earnings per share up 53%.
So just like Cisco, Sierra Wireless is on top of its game when it comes to positioning itself for the internet of things.
The Internet Of Things Showdown
So with two companies poised to profit on the internet of things, which is the better stock to own?
Before I get into that, we need to understand the market size for the internet of things. Cisco estimates it is a $19 billion dollar per year market and Sierra sees over 50 billion connected devices.
Forbes thinks that by 2020, the internet of things market will hit $267 billion by 2020.
So there is money to made here. But are these estimates too rosy? I like to try to look at things from a neutral position before making an investment decision. I agree there is a growing market for the internet of things.
I would love to have my blinds drop based on when the sun is hitting my face when watching television. And the autonomous car is a reality. It might not be the norm in a few years from now, but it is going to happen.
But with that said, I think some aspects of this new technology is more of a fad. I don’t see the need to have everything in your house be a smart device.
And I haven’t even touched on the issue with privacy concerns. I refuse to have a voice assistant in my house because it is always listening and recording. Sure I’m not doing anything illegal, but who knows how that data is being used.
So there is a market for the internet of things. Which stock is better positioned?
Sierra Wireless is setting itself up as a main player in this field with the acquisitions it has been making. As long as the market explodes for this technology, Sierra is going to profit. The only issue is their pricey stock.
With Cisco, they too are positioning themselves well to be a leader in this field. But what I really like about them and why I think they are the better buy is because of diversification.
If the internet of things doesn’t live up to the hype or the market crashes, Cisco will be OK. They survived a major market meltdown in the past and they are diversified in many areas of the technology sector should this new industry not live up to the hype.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.