Sierra Wireless vs CalAmp: Which is the Best Internet of Things Stock?
The Internet of Things (IoT) offers a lot of opportunity for investors, both because some of the companies making big waves in the industry are very small and have lots of room for growth, and because of the fact that IoT is still a burgeoning industry (side note: if you need a quick intro to the Internet of Things, read this).
But picking a winner is never easy, and IoT has shown us thus far that no one owns this market just yet. But there are a few companies poised to make big gains from the Internet of Things, and two of them are Sierra Wireless and CalAmp . Let's take a look at both and see which one is poised to benefit more from this emerging trend.
The case for CalAmp
CalAmp just reported its fiscal Q2 2015 earnings earlier this week, and most of it made investors happy. While revenue was up just 0.6% year-over-year, to $59.2 million, CalAmp's most promising business (Wireless Datacom) was up 6% year-over-year.
The wireless datacom business deals with mobile resource management and machine-to-machine technology (M2M). For example, Caterpillar is a very large CalAmp customer that uses the company's wireless technology to monitor its large equipment for mechanical problems. As a result, the company can anticipate equipment service needs and minimize downtime. A recent deal with Caterpillar should yield $10 million in CalAmp revenue over the next six months.
The other promising market for the company is in what's called user based insurance (UBI). CalAmp's technology is in current UBI systems used by insurance companies to track braking, acceleration, cornering, and other data in cars. The insurance companies then use this information to make adjustments to a driver's insurance premium. This business is just getting off the ground, but CalAmp expects to bring in $16 million from UBI for the full fiscal year. Gartner lists UBI as a significant aspect of the Internet of Things, and CalAmps appears to be in on the ground floor.
The case for Sierra Wireless
Sierra Wireless makes wireless, embedded modules for M2M devices, wireless gateways and software to manage machine-to-machine communication. The company makes up to 34% of all M2M embedded wireless modules worldwide, which can be found in everything from Tesla's Model S to smart city lighting.
Right now about 85% of the company's revenue comes from these little modules, while the remaining 15% comes from software and services Sierra Wireless sells to companies to track, report, and manage M2M devices.
In its Q2 earnings, which ended in June, Sierra Wireless' sales of the modules and other OEM solutions increased almost 23% year-over-year, and sales of enterprise solutions (software and services) increased 27% year-over-year.
Sierra has a clear lead in wireless embedded modules, and the company shipped its 100th million module just last month. One of the most promising opportunities for Sierra Wireless is its M2M management, though. Gartner expects 26 billion IoT connected devices (not including tablets, PCs, and smartphones) by 2020, and companies will need a comprehensive platform to manage them and access the data those devices provide.
If I had to pick one...
While both stocks have a lot of potential in IoT -- and both receive recommendations from premium Fool services -- I really like Sierra Wireless' leadership position in M2M modules right now and its growing enterprise solution business.
Sierra Wireless has a diversified automotive client base, with Ford, BMW, Tesla, Volvo, Toyota and others using its technology. The auto industry is adding more and more navigation options, remote diagnostics, entertainment, and Internet connectivity into vehicles, and I believe Sierra's position within the industry right now gives them a strong advantage as these trends grow.
In addition to its work in the automotive industry, I like Sierra Wireless' work on a wireless city lighting project with Phillips in Prague, London, and Rotterdam -- especially considering that smart cities are just getting started. We're poised to see much more city energy conservation from the type of wireless connections and platform management services Sierra offers.
While both stocks are in a great position for the Internet of Things, investors should know that the relatively small size of both companies -- and IoT's infancy -- means the stocks could experience some major fluctuations as they grow into this new industry.
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The article Sierra Wireless vs CalAmp: Which is the Best Internet of Things Stock? originally appeared on Fool.com.Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple, CalAmp, Ford, Gartner, Progressive, Sierra Wireless, and Tesla Motors. The Motley Fool owns shares of Apple, Ford, Sierra Wireless, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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