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How to Invest in the “Internet of Things”

There are many industries and companies that aim to advance this experience. One growing market, known as the Internet of Things (IoT), connects our household or commercial items to a wireless network by embedding them with electronic, software, or sensor technology. This network of devices allows us to take the next step into a wireless world that relies less and less on direct human-to-computer interaction.

You might actually be using products in the IoT without knowing it. Some common examples include the remote operation of a house’s security system, wearable motion and activity tacking products, and even public trash bins that automatically alert a municipality when it is full.

The Internet of Things is definitely present in our everyday lives right now, but it also has a lot more room to grow. According to research firm IDC, via the Wall Street Journal, the IoT market could nearly triple in the coming years. In 2014, the global IoT market was worth $655.8 billion, but it could reach up to $1.7 trillion by the year 2020.

With the industry showing that much room for growth, investors need to start thinking about investing in the IoT now, and we’ve highlighted a few companies and strategies for those who would like get the IoT into their portfolios.

ETF Success

Perhaps the easiest way for investors to make a play on the Internet of Things is with a themed ETF. If that interests you, check out Global X Internet of Things Thematic ETF SNSR, the first IoT-related ETF on the market.

Big Name Patent Holders

One of the most important steps a company needs to take to capitalize on emerging technology is locking down patents at the earliest possible point. In regards to the Internet of Things market, we’ve seen a lot of companies filing for patents that put them in a good position to grow as the IoT grows.

One such company is technology behemoth Apple AAPL. Apple holds a patent named “Local Device Awareness”, which describes an automated relationship between multiple close-range devices. The technology could be used for position tracking, such as finding a lost remote control, or even proximity-based virtual reality, like a video game that depends on one’s actual position in a room.

Another major IoT patent holder is IBM IBM. Primarily an information technology-focused company, IBM figures to be a major player in the IoT. Currently, IBM holds a patent regarding data filtering in Internet of Things devices, which describes a process in which devices receive and interpret information. This patent puts IBM amongst the frontrunners in technology that allows devices to communicate without human interaction.

Furthermore, IBM just announced an Internet of Things partnership with Cisco Systems CSCO. IBM will implement its Watson technology into Cisco’s wide network of edge devices and end points in an effort to provide real-time feedback and data for the oil & gas, manufacturing, shipping, and mining industries.

Today’s Leading Products

While patents are important for future growth and development, we also have to look at the already-available IoT devices. Again, we are looking at some of the world’s biggest tech companies here.

One of the more obvious industry leaders is Alphabet Inc. GOOGL and its line of Nest home monitoring products. Alphabet, under the Google name at the time, acquired Nest for $3.2 billion in early 2014, and since then the brand has become one of the biggest names in home automation with its smart thermostats, smoke detectors, and safety cameras.

Another leader in the IoT market right now is Amazon AMZN. Amazon’s Dash Buttons, which allow users to re-order specific products with the click of an actual physical button that can be placed anywhere in the home, could be considered an entry-level IoT device. Additionally, the company’s Echo smart speakers, which utilize its Alexa home connectivity technology, are probably the most popular consumer IoT product on the market right now

Google actually recently responded to Amazon’s Echo speaker with a home automation device of its own, the Google Home. The Home runs on Google’s new voice assistant, which also powers its new Pixel phone and represents Google’s new era of hardware/software interaction.

Finally, Samsung SSNLF is another major player with its SmartThings brand. Samsung SmartThings are a series of in-home products, ranging from electric outlets to motion sensors, which allow for easier control of a users’ entire home.

Unsung Heroes

The technology giants will certainly be leaders in the IoT market, but investors should also look into the smaller companies that will be the manufacturers of the actual hardware. For every product IoT product sold by Apple, the supplier who built one of the components within the device also stands to benefit.

One of Apple’s key suppliers is Skyworks Solutions SWKS. Skyworks is the industry leader in semiconductor manufacturing and currently produces a chip that is a vital part of the iPhone. Similar technology will be the backbone of the IoT movement, as semiconductors and sensors move beyond their usual homes in phones and computers and into our other household items. Skyworks is currently a Zacks Rank #2 (Buy).

Investors should also focus on some smaller cap stocks that have potential to grow in correlation with the IoT market. One such company would be Sierra Wireless SWIR, a wireless communications expert with a product line that should fit perfectly in the IoT market.

Another company to consider is Iridium Communications IRDM, a low-Earth orbit satellite company that has recently partnered with IoT platform providers as the industry has discovered a use for LEOs in connecting the world.

5G Revolution

It’s also important to pay attention to the rise of 5G data networks. The term “5G” is short for “5th generation mobile networks,” and it refers to the proposed telecommunications standards that will replace the current 4G standards.

While previous standards have focused on human-to-human communication, 5G will need to power the growing Internet of Things and other technologies that seek to bring people closer to the world around them.

Telecom giants like AT&T T and Verizon VZ have been building up their portfolios of 5G-compatible wireless spectrum, while chipmakers like Qualcomm (QCOM – Free Report) are focused on building the needed hardware (also read: Here’s How To Invest In The 5G Data Revolution).

Bottom Line

The Internet of Things has the potential to change the consumer electronics industry as we know it. The growth of the market will be another indication of humanity’s expansion into an autonomous world, and investors need to start taking note of the IoT now.

Whether you want to focus on the major technology players or the small companies at the heart of the IoT movement, the time is now to add this industry to your portfolio.

Also, investors interested in the Internet of Things should check out this episode of the Zacks Friday Finish Line podcast: