3 Stocks to Watch in the Internet of Things

By Markets Fool.com

In its earliest days, the Internet was relatively limited in scope, built as a robust medium for governments and academic institutions to communicate through computer networks. But after decades of sustained growth, Internet connectivity is ubiquitous in much of the developed world today. For early investors in the trend, fortunes have been made as their companies sold hundreds of millions of Internet-connected computers, mobile phones, and tablets.

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But it's no mystery that the Internet isn't stopping there. To the contrary, many businesses are increasingly finding ways to incorporate the Internet into everyday thingsin our lives.That's where the phrase "Internet of Things" originated. And once again, investors have a unique opportunity to profit by purchasing shares of Internet-of-Things companies in these early stages.

That said -- and keeping in mind this certainly isn't an exhaustive list -- here are three Internet-of-Things stocks I'll be watching closely in the coming years.

1.Google
First, I think Internet-of-Things investors should watch Google. Nearly 89% of the venerable tech giant's revenue last quarter came from its core Web advertising business, so Big G has plenty to gain if it can ensure that its products play a central role in furthering Internet-of-Things initiatives. In fact, this past December, Google's chief Internet evangelist (yes, that's a real title), Vint Cerf, announced that the company was "in the process of establishing an open innovation and research program around" the Internet of Things. As such, Google is offering grants to help fund proposals submitted under its open call.

Google now owns Nest. Credit: Google.

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That's also not to mention Google's "moon shot" initiatives, which, to borrow the words of Google CEO Larry Page, are "big bets" on technology with longer-term time frames. As far as Internet-of-Things moon shots go, these include Google Glass, self-driving cars, and even walking robots to deliver packages from those cars to your front door. All of these products have Internet connectivity and push the boundaries of what the Internet of Things will mean to consumers decades from today.

But not all of Google's intriguing Internet-of-Things initiatives are in the research phase.Google made a big push into the Internet of Things at home last year, with its $3.2 billion acquisition of smart thermostat and smoke alarm maker Nest. Google evensubsequently launched a "Nest Developer Program" to allow software programmers access to Nest's core functionality to create complementary products. So far, those products notably include smart light bulbs, which can flash different colors in conjunction with a smoke alarm and vehicles from Mercedes-Benz that can tell your thermostat to prepare the house for your impending arrival. In the end, as these cutting-edge Internet-of-Things products become more common, they should serve to further diversify Google's already enormous revenue streams.

2. iRobot Corporation
Next, I think iRobot has the potential to turn a tidy profit for Internet-of-Things investors. For one, iRobot is comparatively tiny and has room to grow, with a market cap under $1 billion as of this writing. And while iRobot's flagship Roomba line of robotic vacuums is currently responsible for the vast majority of its sales, the company recently confirmed that it's developing a robotic lawn mower to help diversify that stream. In the meantime, Home Robots are expected to enjoy healthy growth in the range of 11% to 13% this year.

iRobot's next Roomba could feature advanced cloud navigation. Credit: iRobot Corporation.

But what does that have to do with Internet of Things? Earlier this year, iRobot outlined plans to begin monetizing other investments it has made to integrate robots with the cloud over the next year. Specifically, iRobot CEO Colin Angle suggested that cloud integration would enable the company's robots to feature next-generation mapping, navigation, and (over the longer term) manipulation.

By storing and retrieving high-fidelity maps online, explained iRobot Chief Technology Officer Paolo Pirjanian, "arobot can use the cloud to start learning things about its environment." He continued: "For example, this object is a cup, and so I have to grab it like this; it looks like it's glass, so I need to grip it tight enough so it doesn't slip, but not too hard so it breaks."

Like Google, iRobot's Internet-of-things ambitions will take time to come to fruition. But I, for one, intend to still be holding my own shares of iRobot when its smarter, cloud-enabled bots hit the market.

3. Sierra Wireless
Finally, if you're searching for an Internet-of-Things pure play, look no further than Sierra Wireless, a designer and manufacturer of a variety of wireless communications products including embedded wireless modules, wireless gateways and modems, and machine-to-machine cloud solutions.

An embedded wireless module. Credit: Sierra Wireless.

Like iRobot, Sierra Wireless also has a small market capitalization of just under $1 billion. But just last month, the company also disappointed investors for the second time in a row, when it told them toexpect modest growth in the mid-teen percentage range for both its top and bottom lines in the current quarter.

That includes what CEO JasonCohenour described as "robust" 19% organic growth -- that is, growth not achieved through acquisitions. But Sierra Wireless' outlook doesn't include any contributions from its recently announced acquisition of Accel Networks, a leading provider of 4G LTE antennas and monitoring platforms.

To be fair, Accel is expected to increase revenue by around 18% over the next year to $10 million, or just 1.4% of Sierra's anticipated sales next year. But more importantly, Cohenhour says the smaller company should accelerate Sierra Wireless' "device-to-cloud strategy and add significant scale and capabilities to our services business." That's a great thing, considering Sierra's enterprise services business was the lone under-performer in its most recent quarter.With shares of Sierra Wireless now down around 42% so far this year, Internet-of-Things investors could be poised to enjoy solid returns if Sierra Wireless can deliver on that promise going forward.

The article 3 Stocks to Watch in the Internet of Things originally appeared on Fool.com.

Steve Symington owns shares of Apple and iRobot. The Motley Fool recommends Apple, Google (A shares), Google (C shares), iRobot, and Sierra Wireless. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and iRobot. 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.