Few businesses can rival the jaw-dropping shareholder value creation Intel (NASDAQ: INTC) has achieved since its initial public offering in 1971. Had you invested $10,000 in Intel stock back then, reinvested your dividends (which it only started to pay 21 years later), and held your shares through today, you'd be sitting on nearly $7.5 million.
But that raises the question: Where can investors find the next Intel to put their money to work now?
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To answer that question, we asked some of The Motley Fool's top investors to each discuss a stock they believe looks like Intel in 1971. Read on to see why they chose Sierra Wireless (NASDAQ: SWIR), DHX Media (NASDAQ: DHXM), and Impinj (NASDAQ: PI).
An Internet of Things pure play
Steve Symington (Sierra Wireless): Investors have watched in delight for decades as Intel's market-leading central processing units effectively changed the way the world worked. But another trend today could prove to be even bigger: the Internet of Things. That is, more specifically, the practice of adding internet connectivity to objects that traditionally wouldn't have it -- things like thermostats, vehicles, appliances, and a host of other things that can deliver intriguing functionality through wireless connections.
At the center of that trend is Sierra Wireless, the world's No. 1 cellular module vendor. Lucky for us, Sierra Wireless is still a relatively small business, with a market capitalization of roughly $700 million as of this writing. And that's after its stock fell nearly 25% last month, as the company's strong second-quarter results were overshadowed by the dilutive effects of Sierra Wireless' impending $107 million stock-for-stock acquisition of managed enterprise-solutions specialist Numerex Corp. (NASDAQ: NMRX).
To that end, Sierra Wireless is rightly excited by the acquisition, which will effectively jump-start its device-to-cloud business, management says, with "an established customer base, significant sales capacity, proven solutions, and recurring revenue scale."
But how big is Sierra Wireless' opportunity? According to analytics firm Research and Markets in June, the Internet of Things market is expected to grow from just over $170 billion this year to roughly $561 billion in 2022, good for a compound annual growth rate of roughly 26.9%. With its solutions playing a central role enabling that growth, Sierra Wireless investors who take advantage of the recent pullback should be poised to enjoy market-beating gains for years to come.
Good grief, what an underrated media stock!
Anders Bylund (DHX Media): Back in 1971, Intel had just released the world's first commercially available microprocessor and the PC-building staples in the x86 product line were still more than a decade ahead of the company. We're talking about an innovative upstart with a staggeringly bright future ahead of it.
Nobody can read tomorrow's history books today, but I believe that DHX Media could be headed down a similar path.
The maker and distributor of popular child-friendly shows and movies can trace its roots back to a company founded 20 years ago, but DHX is still a hungry little upstart in a global market. Management is embracing the new era of digital distribution with open arms, which could help it leapfrog today's largest film studios in the long run. And when a content library includes enduring household names such as Peanuts, Strawberry Shortcake, Hello Kitty, and Teletubbies, you know you're looking at a long-lived cash machine.
That's where DHX Media stands today, at the cusp of a worldwide explosion in digital media sales and armed with a massive portfolio of kid shows. Don't call DHX a Mickey Mouse operation, though. The company's target audience may not have deep pockets, but its parents do -- and young viewers who get hooked on a particular show or character often want repeat viewings of their favorite materials. That's how you build an enduring connection to that future consumer, with a steady stream of licensed merchandise lining DHX's pockets along that long road.
The company is producing a steady stream of solid profits, but Wall Street is largely ignoring DHX Media. From a price-to-sales perspective, the stock is trading at a discount to other media producers. We may be watching a future digital media giant in the making here. In many ways, that's like finding Intel when the very idea of microprocessors was young.
A chip giant in the making
Tim Green (Impinj): Most semiconductor companies will never be as successful as Intel, but betting on those forging ahead in emerging areas could produce stellar returns if things go right. One such company is Impinj, a radio-frequency identification (RFID) solutions provider. Impinj already ships billions of its inexpensive RFID chips each year, allowing objects to be tracked in real time. These chips can simplify inventory management and reduce costs for companies in a wide range of industries, including retail and logistics.
Notable companies already using Impinj solutions include department store Macy's, which plans to tag every item that goes through its stores and fulfillment centers by the end of 2018, and TopGolf, a chain of golf entertainment centers that uses Impinj chips to track the locations of golf balls. Impinj expects to ship around 7.1 billion units this year, but it sees the long-term potential being much higher. In the most recent earnings conference call, Impinj CEO Chris Diorio pegged the potential from just five large Japanese convenience store chains at 100 billion units annually.
Impinj is not a cheap stock, valued at around $800 million and trading for roughly six times trailing-twelve-month sales. But sales could soar in the coming years as companies turn to RFID chips to improve their operations.
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Anders Bylund owns shares of Intel. Steve Symington has no position in any of the stocks mentioned. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sierra Wireless. The Motley Fool recommends DHX Media, Impinj, and Intel. The Motley Fool has a disclosure policy.
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