Safe ways to invest in IoT

Technology stocks have been the market leaders for the past couple of years but the sector has recently taken a hit. That’s created buying opportunities, but this complex sector can be tough for investors to navigate. While these companies create new products and services, as  well as boost the efficiency and productivity of the old ones, the advances are not always easy to understand. In a rapidly changing environment, picking winners and avoiding the losers is a challenge.

One of the best ways to succeed is to focus on the companies that are most affected by the changes. These are often global players and have today’s dominant products and services – the things we know and use. They have the financial wherewithal to acquire startups, the money to invest in research and development, and the leeway to make mistakes. They are motivated to find solutions while relying on mainstream businesses to generate the profits to pay dividends today.

In the first part of a four-part series on emerging technology trends, we look at the Internet of Things:

What it means: The Internet of Things (IoT) is the connection of devices to the Internet. It is the idea behind the Google Home and Amazon Alexa personal assistants or a Honeywell Lyric or Alphabet Nest thermostats, which are controlled by WiFi or by your cell phone.

This technology is in the early stages, but rapidly developing. At Christmas, Samsung was marketing a touch screen fridge that creates shopping lists with a voice command. It lets you see inside your fridge without opening it via cameras that display the image on the outer door. You can set expiration notifications to ensure your milk and yoghurt are always fresh.

A Google Home came my way at Christmas. I can ask for a weather forecast, news headlines, a traffic report, or the current price of my stocks. I have linked it to a Spotify online music account and can use voice commands to make a music selection. After a recent trip to the U.S., I crossed the border and used the Lyric app on my phone to turn up the heat, so the house was nice and warm when we pulled in the drive.

 Some companies involved: The personal assistants sold by Amazon (NDQ: AMZN) and Google (NYSE: GOOGL) are examples of first generation products. There is a lot more connectivity and versatility to come. They are not yet huge contributors to revenue but hold a lot of promise.

Alphabet purchased Nest Labs in 2014. Nest makes the thermostat which competes with my Honeywell Lyric (NYSE: HON). Amazon is experimenting on many fronts including a store in Seattle that does not have any checkout counters. Instead, it uses cameras and sensors to track what shoppers remove from the shelves, and what they put back. Customers are billed with credit cards on file.

Blackberry (TSX: BBRY) has two operating systems that use IoT to create a secure connection between software. That focus helped Blackberry’s software-and-services revenue hit a record US$212 million in its latest quarter, 17% higher than a year earlier. The company reported on March 28 that 70% of that revenue was recurring, indicating a rapidly growing niche.

IBM (NYSE: IBM) is a leader in the field with many initiatives from software for electric vehicles to software that helps develop those smarter fridges.

This is an edited version of an article that appeared in Gordon Pape’s Internet Wealth Builder newsletter.