Three Stocks Revealed for Motley Fool’s “The Year the Internet Disappeared”

by Travis Johnson, Stock Gumshoe | June 16, 2014 1:14 pm

Checking out the Motley Fool's latest "Internet of Things" pitch for three companies

“An opportunity this good only comes along once twice in a lifetime.

“These 3 quick-action interviews with our Foolish investing experts (below) show how to prepare yourself for the $19 trillion revolution that’s swallowing up the Internet. And how to zero in on the 3 next-generation technology stocks that are best positioned to profit.

“I’m so convinced that I invested $15,000 of my own money on the spot!”

That’s how the latest ad for the Motley Fool Stock Advisor opens — it’s a pitch for the “Internet of Things” which they call the “Monster that Swallowed the Internet.” So not really so much the “internet disappears” as it is “the internet takes over all things,” and we’ve looked at a similar “R.I.P. Internet” pitch[1] from them before … but this one’s pitching three companies (the first one teased just one), so let’s dig in and find out what they are.

The tease this time is not that you’ll earn 89X your money specifically, but that this next phase of the Internet might be 37X bigger than the internet as we currently understand it. The special report they’re flogging is called “How to make $19 Trillion disappear into your pocket” … so they’re certainly still tossing around some big, jaw-dropping numbers.

And as the Fool has been wont to do of late, they’ve gotten newbies to write their ad letters — whether that’s because these folks have compelling stories to tell, or just because they don’t want to soil the reputations of David and Tom Gardner by having them sign the over-the-top promotional hype.

So the letter’s actually signed by Aaron Winter, their “Director of New Member Outreach” … and it takes the form of a series of mini-interviews with Fool folks about what the Internet of Things is (basically, all things becoming connected — not just phones and computers and wearable technology stuff but almost everything you can imagine), and how successful the Gardner brothers have been with Stock Advisor over the years.

We’ll skip over that stuff and get straight into the “interview” with David Gardner, since he’s the one who tosses out his hints about which companies are being teased… we’ll go through the three stocks they tease one at a time:

“Why is the Internet of Things so exciting for investors like us, David?

“David: It’s exciting because what human beings are capable of achieving through technology is exciting. It’s exciting because it means that anything is possible. We can’t even dream of what kind of benefits this is going to bring 5 years from now. Let alone 10 years from now. But even I’ll admit I never thought we’d see an opportunity like this come around again, so soon after the Internet itself reached its tipping point.

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“I guess 20 years is pretty soon.

“David: I’m a little older than you. Trust me, it’s very soon.

“So you just told me that your top Internet of Things company for wireless modules is XXXXX. Why does this one stock stand out?

“David: There are a few things that catch my eye. First, this company makes the smallest wireless modules in the industry, and they’re also some of the most durable. Remember, these connections to the Internet of Things have to fit everywhere. Second, even though this company is very small, it’s got an immaculate balance sheet, with zero debt and $151 million in cash….

“They’re already selling their products to major players like Cisco… GE… Ford… BMW… Verizon. And they’re already involved in every area of the Internet of Things. From transportation, to energy, to health care, to retail, to emergency response, to agriculture, to manufacturing.”

So that one is the same stock Gardner teased for that earlier “R.I.P. Internet” starting back in November, Sierra Wireless (SWIR), which is indeed cash-rich with $151 million of net cash on the books — it’s also small, with a market cap of just over $600 million.

Sierra Wireless sells wireless modules, the little doohickeys that let machines connect to cellular networks and therefore get on line and communicate with other machines… and they’ve said in the past that they make the smallest ones, though I don’t know if that’s still true. They do have a large share of the market, roughly a third of the modules being sold are SWIR modules these days.

They’re not profitable just yet on an operating basis (they have reported a profit over the past year, though that was from discontinued operations and from the sale of their Aircard business), but analysts expect them to book a profit this year and the stock is trading for something like 20-25X their expected profits in 2015.

This is another case of a stock that analysts see growing a bit, but pretty much priced for that growth already and in a competitive market… and Dave Gardner sees it having a bigger “story,” he is looking through the foggy future into a company he seems to think will become dominant in a much larger market. So the analysts think SWIR is about as pricey as it should be in the low $20s (the average price target is $22), and David Gardner expects much more… though maybe not in one year (he and his brother, Tom Gardner, both tend to be very long-term buy-and-holders in the stocks they pick for Motley Fool Stock Advisor).

SWIR just bought In Motion Technologies[2], not a huge acquisition but one that gets them into vehicles and fleets (In Motion sells rugged routers for vehicles, apparently). With that new business they see their expenses going up, so they’re guiding to 6-8 cents in non-GAAP (mostly meaning, “not counting stock options expenses”) earnings for the second quarter — analysts are just taking their lead from that, guessing at 7 cents. So they do see growth continuing, but it’s not blow-your-socks-off growth — and gross margins are good at better than 30%, so if they can get substantial revenue growth they could really bump up earnings pretty quickly.

Estimates were cut a bit after the company released guidance that was below expectations last quarter, which is why the stock came down from $26 pretty quickly and is now back around $20, quite close to where it was when the Fool first started teasing this idea last Fall. Seems like a decent company to me, and I like that they are small and focused on what should be a growing industry in the “machine to machine” (M2M) networked communications, particularly after they sold off their commoditized AirCard business… but I don’t really know what their advantage is over their competitors. If you’d like a little more color on the stock and some more to think over, here’s a take on SWIR from a different Motley Fool writer[3]. It is overvalued by most conventional metrics, but not dramatically so if they can really come close to earning 80 cents next year… so it really depends on whether you’ll think they’ll be able to grow earnings by at least 15% a year or so to justify the current valuation.

Wall Street analysts think no, David Gardner apparently thinks yes — he certainly gets some wrong, but he does have an evangelist’s zeal for companies that can “break the rules” and the growth of such companies has paid off more than once. I don’t know that he’s necessarily been great at picking companies that make little chips and modules, and that business has tended to have great competitive pressures that keep margins down for companies that can’t build big monopoly positions, but you can make the call for yourself — is SWIR right for your portfolio? Researchify and let us know what you think (just use that friendly little comment box at the bottom of the page).

While you’re looking into SWIR, we’ll move on to the second stock teased…

“And your top Internet of Things stock for middleware is XXXXX. What do you like about that one?

“David: There are a lot of competitors in this market, but this company has been the leader of the pack in data analytics for years. There’s a famous story in Silicon Valley about Steve Jobs driving to their CEO’s house to kneel at his feet…

“My other favorite bit of trivia is that this one middleware specialist does business with 134 of the 200 biggest companies in the world. That’s a good sign. But the funny thing is, the guys on Wall Street have never understood them very well… at one point they beat their earnings estimate 17 quarters in a row! Jim Cramer went on TV and said it was ‘ridiculous.'”

That one, sez the Mighty Mighty Thinkolator, is the big data pioneer Tibco Software (TIBX). David Gardner has liked this one for a long time, it was also teased by Stock Advisor about 18 months ago[4] — at that time the stock had fallen pretty sharply after disappointing sales, and it’s been bouncing around since but is roughly a dollar cheaper than it was in January 2013. As with SWIR, estimates have been coming down for upcoming earnings over the last couple months, but currently analysts expect them to earn 95 cents this year and post 20% earnings growth next year — so if that comes to pass, you can argue that the $21 share price is pretty reasonable. Not cheap, but reasonable.

Competitive pressures are strong in the big data sector, too, not just for the cloud companies but also for the enterprise software providers like Tibco — there’s an interesting article about the recent downgrades on TIBX and the competitive threats hitting Tibco from a different Fool author here[5] that might be worth a read. And of course, if you’ve any TIBX opinions to share, well, we’re all ears.

And one more stock for us today?

“And to put a bow on it, your top Internet of Things stock for smart services is XXXXX. What gives them a leg up?

“David: This is a global technology powerhouse with tremendous resources, that just made a big bet on IOT smart services. They bought the outfit that made your Nest thermostat for $3.2 billion. But that’s pocket change to them, and their core business is so successful that they can well afford to make this type of investment in such a huge opportunity. They just increased their cash flow from operations by 21% year over year, and it was already off the charts. But when you really look at why they’re successful, it’s because all the brightest minds in technology want to work there. They get 100,000 job applications a year, and they reject 99.5% of them!”

Well, this time there are two tickers you could swap in for that “XXXX” — it could be GOOG… or it could be GOOGL. But regardless of which class of stock they prefer, we’re talking about internet advertising (and mobile, and search, and driverless cars, and…) powerhouse Google.

So you’ve heard of them, right? Yes, they did buy the “smart thermostat” Nest a little while ago, which is one of the higher-profile “connected home” consumer-facing companies in part because of their Apple-inspired design. That is, of course, a teensy part of Google’s business even though they coughed up three billion dollars for the nascent company. Google is a massive, massive company with global reach and an almost impossibly strong grip on their core markets (internet search, advertising and video, and mobile operating systems). I own shares of GOOG (and GOOGL, for that matter), I’ve owned them since a few months after the IPO a decade ago, and I have a hard time imagining a situation when I’d want to sell them — at least, unless they get to a some ridiculous valuation.

And they’re not at a ridiculous valuation now. It’s not a cheap value stock like Apple (AAPL) based on most metrics, but it’s not expensive — it’s a blue chip stock with unassailable market share in a business that’s still growing pretty quickly, and it’s about 10% off of its all time highs of a few months ago but is still trading at more than 20X expected 2014 earnings. That’s fine as far as I’m concerned, particularly as there are expectations that Google is going to bump up growth again next year, but even if they were only growing earnings at 8-10% I’d be happy to hold the stock thanks to their dominant business and consistently high earnings… particularly because they continue to invest their excess cash into prospective growth opportunities like the Internet of Things, their Google Fiber broadband projects, and everything mobile.

They don’t give guidance, though, and can certainly have bad quarters or make eccentric-seeming investments, so it wouldn’t be shocking to have the occasional down-10% event for GOOG even if the economy continues puttering along.

GOOG and GOOGL are essentially the same thing, GOOGL is the original share class and GOOG was created when they split the shares by spinning out class “C” shares as GOOG a few months ago — that was irritating, because it just further cemented the founders’ voting control for no real reason (they had nearly complete control already), but I can handle being irritated. GOOG shares get no vote, GOOGL shares get a small vote — but in effect, no one other than Sergey Brin, Larry Page and Eric Schmidt has any meaningful shareholder vote, so if you’re interested in Google I’d just buy whichever stock is cheaper… most of the time that will be GOOG, which has tended to trade at a 1-2% discount to GOOGL.

So those are your three “The Year the Internet Disappeared” stocks … and no, the Internet is not disappearing, and these are all stocks we’ve mentioned or discussed before, sometimes in connection with previous Motley Fool ad campaigns. So what do you think? Any thoughts on GOOG, TIBX or SWIR? Any other “Internet of Things” stocks you’d prefer, or do you think it’s all phooey? Let us know with a comment below.

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  1. similar “R.I.P. Internet” pitch:
  2. In Motion Technologies:
  3. a take on SWIR from a different Motley Fool writer:
  4. teased by Stock Advisor about 18 months ago:
  5. from a different Fool author here:
  6. You and I can each earn a free share of stock right now if you open an account!:

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  1. 30
    Cathy Kandravi
    Jun 16 2014, 03:17:20 pm

    Thanks thinkolater oh I forgot Travis when it comes to the market it is hard to tell who is the boss, either way they always surprise me, like xmas morning and I AM no kid no more. Thanks for the pick I am never or almost never surprised you guys pull the swir out of the hat. Thanks a glad to be an irregular happy market maker?, thanks for the pick you all are great,take care Cathy

  2. Avatar
    Jun 16 2014, 03:30:14 pm

    I like another internet of things stock, also pitched by the Fools InvenSense holding that one long term, any ideas on Splunk Inc.? stuck in a position with a 10$ Loss per share but it looks like it’s picking up after it’s last quarter results. Rgrds

    • Avatar
      Jul 17 2014, 04:50:22 pm

      I got the email to buy the Fools investments for INVN first. I figured it out on my own, bought at 20.01. This time with these 3 of Internet of things…I did the same today on my own and did find google as one of them. Searching more I found this site and you did the rest for me and I thank you for saving me tie. I am a chartist and haven’t had time yet to look at them. I will wait until the charts give me a buy signal first. Google just came out with earnings minutes ago, will wait until all the hoopla is over, because of the Malaysian plane just going down. Love this website…Great find!

  3. Avatar
    Jun 16 2014, 04:25:22 pm

    You didn’t mention that SWIR is a Canadian company, which from my experience means they don’t compete well. Something about Canada I think. Examples: all the former oil trusts, Blackberry, BS oil well search and develop companies.

  4. 11 |
    Duane Hussey
    Jun 16 2014, 05:17:57 pm

    Thanks Travis, I do like reading your materials!
    I have bought a few of the Fool’s recommendations over the years and still hold them being up $1336.89. (+6.6% $243.45; 13.01% $1117.92; 170.04% $3242.24; -18.47% -$1350.78; & -38.57% -$1915.94) Like all free advise you have to do your own home work, but it would seem David has read Jeremy Rifkin. Both of his books “The Third Industrial Revolution” and more recently “The Zero Marginal Cost Society”, then he pilfers some text, looks for companies that fit his prognostications, then hawks them to get one thinking.

  5. Avatar
    Jun 17 2014, 05:35:27 pm

    Haven’t been to Gumshoe in awhile since I am (unfortunately) just window shopping my in-box stock teasers. I made money as a Fool (got crushed in a bad situation so sold/lost everything) and this one got me wondering. You’re a gem Travis…

  6. Avatar
    Ted Anibal
    Jun 17 2014, 06:01:06 pm

    I bought SWIR in late 2013 for $19.34. Two weeks later I sold it for $24.41. Not bad at all, but it revealed the stock’s volatility, which is currently 52.79. I bought it again twice on price dips and still hold 1,000 shares. I’m ready for some serious appreciation.

  7. Avatar
    Jun 18 2014, 07:56:31 am

    I found a new company ALPS, their stock is now 50 cents and have good growth! Im going to get 5 thousand shares, pray for me!

    • Avatar
      Jul 9 2015, 12:25:07 pm

      Hello, was just curious if u could give me a little more info on this stock? Is ALPS the symbol? I tried looking for it but couldn’t find anything around 50 cents (I know you posted this comment in June and it could of changed) thank you in advance

    • 40
      Michael Walker
      Jun 22 2014, 01:37:21 pm

      Would be interested in “alps” ? also could find so marijuana related stock under “alps” Legalization is LONG over due especially in light of recent elimination of seizures using hemp oil not to mention the numerous medicinal and industrial uses as well as recreational use by consenting adults. What is correct symbol or actual name of the company ?

    • 37
      Jun 18 2015, 06:09:37 pm

      Whomever is looking for a Mary Jane stock, now may be a good time to dip into INSYS which is portraying itself as a medical stock (and maybe it really is) that is developing legitimate uses for well-controlled cannabis development. etc.

      June 18, 2015

  8. Avatar
    g pare
    Jun 22 2014, 10:42:19 am

    Also have done well with The fools. Just sold netflix with a 588 per cent gain. Wish I had bought more at the time. I have swir and am hopeful. What’s going on with stellar biotech. Down she goes?

  9. Avatar
    Jun 22 2014, 10:50:41 am

    Thanks Travis for digging up great gems.
    I think internet is here to stay even if internet2 comes to life in a big way. And what can we say about GOOG and GOOGL ! When is the ‘dividend’ paid?

  10. 109 |
    Gerald Galanowsky
    Jun 22 2014, 12:22:39 pm

    For those who wish to buy a highly speculative stock , you may wish to purchase LQMT .
    I do not currently hold a position in LQMT , but I am watching closely.
    I think perhaps a better speculative pick than ALPS which I can’t seem to obtain any research on.
    This is what I discovered on the internet about LQMT,
    ” The biggest benefit to Liquidmetal, from its relationship with Apple, is that Apple’s interest in the alloys has essentially validated the claims of Liquidmetal Tech. that the alloys are transformative in nature and will revolutionize the materials market. Since the MTA was signed in Aug., 2010, major companies have opened their doors to Liquidmetal Tech. and are now exploring potential uses for the alloys in their own products.

    The revolution will begin soon, and may well be started by Apple when it employs the alloys in its own product line. It is no longer a matter of IF. It is now only a matter of WHEN.

    For example, if one takes the time to look at the string of 17 plus patents Apple has filed recently, they all point in one direction: utilizing liquidmetal and sapphire crystal to produce a phone/tablet/watch that is 1) waterproof, 2) has a superior antenna, 3) houses a superior battery, 4) is much more secure in that opening the case will destroy the chip that houses secure data, 5) a superior game playing device with a joy-stick built in to the Home Button, 6) housed in a stronger, lighter, case that is highly scratch resistant. (See reference, below.)

    Check It Out!

  11. Avatar
    Jeanne Theunissen
    Jun 22 2014, 01:35:18 pm

    This has nothing to do with any stock, but the technology being discussed here. We have a laptop computer in the kitchen that makes a sound like a new device being plugged in or unplugged every time we open or close the refrigerator door. Our network map also shows a non-existent “phone.” Can anyone explain why our computer is detecting the fridge as a phone?

    • Avatar
      Ian S
      Jun 23 2014, 10:01:50 am

      Download an app for FING. This will show you the IP addresses for everything on your network at the instant you search. Having done this, unplug the fridge from the mains, pro tem. Refresh the Fing analysis and see if one of the previously detected items has gone offline. If it has you will know you have a “smart” fridge and what its IP address is. Put the fridge plug back in the socket. Check Fing again and click on the fridge ISP for some details about it.

    • 1233 |
      Hi Pockets
      Jun 23 2014, 06:50:00 pm

      Jeanne, when was the refrigerator purchased?

      When you say it makes a sound, what sort of a sound? Is it a “BEEP”?

      Does the sound vary in any way depending of the distance between the lap top and the refrigerator?

  12. Avatar
    Jun 22 2014, 09:07:18 pm

    Check out POET Technologies, their PET chip and POET chip will dominate semiconductors and run the Internet of things. This week it’s anticipated they will announce they have scaled down thier PET chip to 100nm or below. This chip doesn’t even include their optical components, POET, and is already significantly faster and uses lower power than any current semiconductor. And all can be produced in current foundaries 😉 Genius!

    • Avatar
      Ian S
      Jun 23 2014, 10:06:32 am

      See also Telit TCM. LSE listed on the London stock exchange, though mainly Israeli run.
      Visit their website for more Internet of things and M2M technology. This share has risen handsomely in the past two years and should go higher.

  13. Avatar
    Kate Albright
    Jun 23 2014, 09:56:39 pm

    CNBC commented on a treatment of combined drugs – Lumacrafater and Kalydeco used in the treatment of cystic fibrosis by VRTX pharmaceutical. They are reporting any day now on whether or not the treatment has been successful. Supposedly it will almost double the price of the stock or go the opposite direction depending on results. Any ideas or insights by either you or the good doctor-or anyone else in the know?

  14. Avatar
    Jun 25 2014, 07:11:23 pm

    Still scratching my head about swir. Bought some back when this article first came out. Then they were waiting on the big news. Since that time $24pr share it has mostly gone down. Bummer.

  15. Avatar
    Don Sander
    Aug 13 2014, 06:11:02 pm

    I believe graphene- and carbon nanotube-based electronics will soon shrink the size and increase the power of electronic devices to the point where they are unobtrusively small, and integrated into everything. Nanotechnology is also poised to revolutionize a broad array of industries and technologies: materials, coatings, optics, medicine, virtual reality, etc. I was invested in Powershares Lux Nanotech ETF when they liquidated. Can you recommend other investments that will tap into the growth of nanotech-based companies?

  16. Avatar
    Ron Son
    Aug 19 2014, 08:28:22 am

    I hate to pour cold water on those dreaming of big bucks . There is no one expecting a correction given that US stock are at an all time high . The conflicts in the Middle East ,Ukraine and a cold war with Russia.

  17. Avatar
    Ron Cabe
    Aug 25 2014, 01:18:53 am

    Well it seems to me it is sierra wireless to be a big big player in providing Cisco and others with Lg4 . They are the front runners. Better get in while it’s still cheap. Cloud streaming is the future.

  18. Avatar
    Jess Roberts
    Sep 6 2014, 02:03:15 am

    LQMT spiked HARD around january into around .40 …. i owned stocks that were .16 from straight booming rumors.. and i held from back in november. … it has potential.. here is an interesting fact though, just yesterday..

    one of LQMT top share holders sold aTON of shares . .. what is that about and WHO is that guy? would be very useful to know more about who did that, and his connection to WHO ELSE? … the market is shady. anyone read wolf of walstreet? aside from the crazy drugs prostitutes etc. type stories.. there is a good amount of information about the stock market exposed, shaaaady information. the whole wall street controls the overall price. price manipulation is EVERYWHERE.

  19. Avatar
    Jess Roberts
    Sep 6 2014, 02:10:18 am

    these small companies, aren’t regulated as tightly as the larger ones.

    a pink sheet stock.. BE CAREFUL. you have to watch it.

    not watching your pink sheet slot is like throwing money down on a blackjack table and walking away. you wouldn’t do that.

  20. Avatar
    Motley Crue
    Sep 14 2014, 11:59:18 am

    Okay, Oracle is likely the other company – the “middle-ware” company. Think about it. They bought Java; and their famous mantra on the site is: “Java is embedded in billions and billions of devices;” which is true. And Larry Ellison owns Oracle; and Gates bowed down to Larry Ellison’s feet; they are mates. What you think? And WHY are people “GUESSING?” Is this a thing where you have to ‘susbcribe’ to Motely Fool to get the “actual name” of the thing they are talking about? If so, one person go subscribe; and then tell the rest of us about it. 🙂

  21. Avatar
    Nov 12 2014, 02:59:42 am

    but but but the teaser said it would not be Google, didn’t it? I sat up past my bedtime waiting for the membership pitch, Foolishly thinking maybe the nuggets would be revealed without one.

  22. Avatar
    May 26 2016, 11:00:38 am

    Tommy D i been saying that. A gartner report revealed 75-85% of IOT devices have more swiss cheese holes than MS Windows. Id rather zero in on a specific than buy HACK. Im doing so much DD on securing IOT but not getting much. Alot of these IOT plays are going to fizzle but the one that offers the (working) security will do well. Pen testing, packet sniffing etc. Any thoughts?

  23. Avatar
    Jun 17 2016, 05:34:16 pm

    STM taking a shot at IOT security with STSAFE-A100 provides strong authentication services that help make sure only authorized IoT devices can access online services and only authorized accessories or consumables are recognized and accepted by an application. It is compliant with the USB Type-C(TM) device-authentication scheme and secures communications with a remote host using Transport Layer Security (TLS) handshaking.

  24. Avatar
    Rich Abel
    Jul 24 2017, 02:34:40 pm

    TIBX was bought by Vista Equity Partners Sept 29, 2014, therefore no stock symbol. TIBX is history and is PRIVATE and NOT PUBLIC. Correct me if I am
    not correct. I just read it.

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