One of the strongest corners of the market this year has been the semiconductors industry. Throughout the chip-making space, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable “Internet of Things” (IoT) devices.
For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s (AMZN) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the “Internet of Things”)
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. With that said, we’ve found three already-strong stocks that are looking to benefit even more from further IoT growth.
1. Texas Instruments (TXN)
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. The company’s IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories. In its most recent earnings report, Texas Instruments saw growth of 17% in its Embedded Processors unit, while segment operating profit climbed 45%—and that’s not to mention that TXN once again surpassed our consensus estimates for earnings and revenue. Texas Instruments is currently a Zacks Rank #1 (Strong Buy), putting it at the top of the “Semiconductor – General” group, which is currently in the top 3% of the Zacks Industry Rank.
2. ON Semiconductor (ON)
ON Semiconductor has traditionally been known as a power management and commodity chip maker, but the company has started to carve out a budding IoT division. ON is now heavily involved with automotive solutions, and its IoT offerings also include products catered to wearables, smart city development, and industrial automation. Currently, the stock is sporting a Zacks Rank #2 (Buy) and an overall VGM grade of “A.” ON has emerged as an exciting growth pick, with current consensus estimates calling for EPS growth of 77% and sales growth of 38% this fiscal year, as well as EPS growth of 15% and sales growth of 2% next year. The company’s P/E ratio of 15.47 and P/S ratio of 1.83 also work to show that its shares may be undervalued right now.
3. Vishay Intertechnology (VSH)
Vishay Intertechnology is a global manufacturer and supplier of discrete semiconductors. The company has a broad portfolio of unique passive and active solutions that are tailored to the “things” being controlled in the IoT. Vishay markets its portfolio to manufacturers of everything from biometric monitoring systems to fitbands and smart appliances. The stock is currently a Zacks Rank #1 (Strong Buy) and has an “A” grade for Value. VSH has a P/E ratio of 15.39, as well as a PEG ratio of 0.75 and a P/S ratio of 1.26—all figures that suggest its shares are undervalued. Also, based on our current consensus estimates, we expect to see Vishay post EPS growth of 65% and sales growth of 12% for the full fiscal year.
The Internet of Things is one of the most exciting emerging tech markets in the world. And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products. The Internet of Things needs semiconductors to function, and as the IoT grows, so too will semiconductor companies.
The best way for investors to cash in on this growing trend is to identify semiconductor companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.