Investing in Internet of Things
Investing in Smart Refrigerators and Other (Internet of) Things
By Cody Willard Follow Sep 21, 2015
With a 13-week-old daughter who has a tracheotomy tube and a gastrointestinal tube who needs eyes on her basically 24 hours a day, we're getting little sleep and watching this little girl continually improve and heal. And this weekend, my wife and I were trying to remember if we had any orange juice in our refrigerator at home, 25 minutes from where we're staying with our two daughters at my in-laws' house while adding on a new section for our children at our home. (Thanks again for all the well-wishes, prayers and support).
I made the point that in another five or 10 years, we'll likely have refrigerators that will have cameras inside them and those fridges will be connected to the Internet over Wi-Fi and we'll have apps on our smartphones, tablets and smartwatches that will enable us to see inside our refrigerators and freezers at any time from anywhere. That's the Internet of Things (IoT) that we hear about; it's coming and you'll want to invest in it.
Just today, Jim Cramer wrote a stimulating article this morning about how "The Atmel Deal Shows How Opportunity Keeps Coming In," and in it, he highlights the fact that Atmel (ATML) is a play on the Internet-of-Things:
"Atmel was an orphan. A niche semiconductor company that has less than 10% cellphone -- Dialog has a huge cellphone exposure, particularly with Action Alerts PLUS portfolio holding Apple (AAPL) -- Dialog needed to expand into the industrial segment, the Internet of all things, so to speak, and that's Atmel's specialty." (Atmel is part of TheStreet's Stocks Under $10 portfolio.)
The semiconductor space has done a lot of consolidating over the years and continues to do so as the industry tries to raise margins and profits as it eliminates competitive threats. We're barely in the first inning of the Internet of Things Revolution, but already you're seeing the consolidation happen. Cramer explains thusly:
"Atmel has performed so poorly during this period, which has to do with a conscious decision to be less of a cellphone chip company and more of an Internet-of-all-things industrial contender, with an emphasis on autos. That's been the bailiwick, though, of two of the best out there, NXP Semiconductors (NXPI) and Freescale (FSL), which recently merged to create the most compelling Internet of Things offerings. However, Atmel said on the conference call that customers were looking for a second source because of that NXPI-Freescale deal, and Atmel would be the logical winner."
The Internet of Things is going to be huge. And you'll want to invest in companies that make chips or software or otherwise benefit from the fact that most refrigerators to thermostats to ovens and alarm clocks in your bedroom will need to communicate to the Internet to make them "connected." There will be billions of IoT appliances and households sold in the next 10 years -- up from a few million today -- and every single one of those devices will need a networking chip inside it.
NXPI, ATML, Texas Instruments (TXN) and quite a few others are going to be selling chips into this industry. I also recently added a smaller-cap chip stock to my personal portfolio as a play on this theme.
Finally, away from the Internet-of-Things topic and onto the how-we-invest-in-it topic, Jim also wrote, "So why did this happen? Because the market is so horrendous that who in heck would even think about something as nutty as buying Atmel? And that is where the opportunity comes in and keeps coming in. You just have to be open-minded -- something that, frankly, is impossible in this moment in time. ... The fact is, the stock dropped 12% because of the overall market -- not because of Atmel -- and that has created an instant angry shareholder base."
That's one of the most important concepts that any retail investor should realize -- when the markets tank, they take most of the good stocks down with them, and therein lies our opportunity to take advantage of the swings. Like I wrote last week, "I don't have to be wildly bullish or wildly bearish at any given moment; I can let my analysis drive my conclusions and let my playbook help me figure out what to own and why. (On that note, as I mentioned on Real Money in real time as I was doing it, I'd been buying Wearables Revolution stocks like Ambarella (AMBA) and a couple of others last week that I believe are headed much higher in coming years -- no matter what the Fed says or does tomorrow, and no matter whether the bubble-blowing bull market is over or not.)"
So to close the loop, my wife sent me and our older daughter home with a sippy cup full of OJ for our daughter to drink this morning. Lyncoln drank the OJ yesterday afternoon on the drive home. But it turned out, we had a huge, unopened bottle of orange juice sitting in the top shelf of the refrigerator at home anyway. A smart fridge would have come in handy otherwise.
Image by MedGizmo