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Feb. 17, 2015, 4:44 a.m. EST

My top bet on the ‘Internet of Everything’

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About Nicholas A. Vardy, CFA

Nicholas A. Vardy is Chief Investment Officer at Global Guru Capital, a fee-only, SEC-registered investment-advisory firm where he manages money for high-net-worth clients. Vardy is also the editor of three investing and trading services at NicholasVardy.com. He appears regularly on the Fox Business Network and CNBC Asia, and is a highly-rated speaker at investment conferences around the globe.

Nicholas regularly contributes his market views on his company blog. You can also follow Nicholas on Twitter @NickVardy or email him at nvardy@globalgurucapital.com.

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By Nicholas A. Vardy, CFA

The "Internet of Everything" is more than just the latest Silicon Valley buzzword. It's a game-changing phenomenon that's rapidly transforming everything from how we communicate with each other to how German chemical giant BASF manufactures shampoo.

It's also a trend that is making investors in the right companies a fortune.

So, what exactly is the "Internet of Everything," and how can investors make it pay off?

Often referred to simply as the "IoE," the Internet of Everything is the connection of people, data and objects to the Internet, as well as to other smaller, more local networks. Already, millions of "intelligent" devices are being designed to link up to the IoE.

Today, you likely have an Internet connection via a DSL/cable modem or corporate router. That's the traditional way to connect to e-commerce websites like Amazon.com /zigman2/quotes/210331248/composite AMZN +0.57%  or eBay /zigman2/quotes/204653455/composite EBAY +0.27% , video-streaming services such as Netflix /zigman2/quotes/202353025/composite NFLX +1.25%  or music-streaming/downloading services such as Pandora Media  or iTunes from Apple /zigman2/quotes/202934861/composite AAPL +0.51% .

Yet, thanks to the burgeoning growth of smartphones and a plethora of other devices now connected to the Internet, the number of devices that are part of the IoE in your household is set to explode. Within a few years, home appliances, medical devices, gaming consoles, industrial machinery, home-entertainment systems, smart meters and security systems all are set to become "non-traditional wireless access points."

So just how big of a deal is the IoE?

Internet pioneer and Cisco Systems /zigman2/quotes/209509471/composite CSCO -0.23%  CEO John Chambers estimates the IoE could soon become a $19 trillion market. To put that number in perspective, that's $2 trillion bigger than the U.S. economy this year, and about twice the size of China's economy in 2014. Chambers believes IoE will be the biggest single trend in high tech in the coming decade.

And the best part is that we are barely out of the starting gate.

You see, the IoE is about a lot more than just smartphones.

In 2012, only 8.7 billion devices (including smartphones) were connected to the Internet. By 2020, Morgan Stanley /zigman2/quotes/209104354/composite MS -3.58%  estimates that number will rise to more than 70 billion. That's 10 connected devices for every man, woman and child on planet earth. In short, the IoE will turn your home into what you saw on The Jetsons as a kid.

And the IoE winner is ...

.While it remains to be seen which companies and industries will be the biggest winners thanks to the IoE, first on my list is Skyworks Solutions /zigman2/quotes/201417573/composite SWKS +1.99%

Headquartered in Woburn, Massachusetts, Skyworks is a leading supplier of power amplifiers (PAs), front-end modules (FEMs), radio frequency (RF) subsystems, and cellular systems to smartphone makers and other electronics manufacturers.

Skyworks' customers are mostly large smartphone and tablet manufacturers, which require higher RF dollar content per phone.

Skywork's list of customers reads like a who's who of tech leaders: Apple, Cisco, Ericsson, Foxconn, General Electric, Google, Honeywell, HTC, Huawei, Itron, LG Electronics, Nokia, Northrop Grumman, Philips, Samsung, Sensus, Siemens, Toshiba and ZTE.

While Apple attracts the headlines with its blow out sales of iPhones, every single one of the 74.5 million phones Apple sold last quarter had a Skyworks chip inside.

/zigman2/quotes/201417573/composite SWKS 155.65, +3.03, +1.99%

As the chart above confirms, Skyworks has been the far better bet for investors over the past couple of years.

Skyworks recently posted fiscal first-quarter earnings of $1.26 a share, up 88% from a year ago. That marked its biggest gain in years, as well as the ninth straight period of acceleration. No wonder analysts hiked their target price on the stock to as high as $96. That's about 16.5% above Thursday's closing price.

The "Internet of Everything" is destined to be everywhere.

It should be in our portfolio as well.

/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,242.76
+18.48 +0.57%
Volume: 2.30M
Jan. 14, 2022 4:00p
P/E Ratio
63.41
Dividend Yield
N/A
Market Cap
$1644.56 billion
Rev. per Employee
$352,824
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/zigman2/quotes/204653455/composite
US : U.S.: Nasdaq
$ 63.45
+0.17 +0.27%
Volume: 6.19M
Jan. 14, 2022 4:00p
P/E Ratio
3.48
Dividend Yield
1.13%
Market Cap
$39.72 billion
Rev. per Employee
$878,819
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/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 525.69
+6.49 +1.25%
Volume: 7.86M
Jan. 14, 2022 4:00p
P/E Ratio
47.38
Dividend Yield
N/A
Market Cap
$232.86 billion
Rev. per Employee
$3.05M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 173.07
+0.88 +0.51%
Volume: 80.44M
Jan. 14, 2022 4:00p
P/E Ratio
30.87
Dividend Yield
0.51%
Market Cap
$2826.99 billion
Rev. per Employee
$2.38M
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/zigman2/quotes/209509471/composite
US : U.S.: Nasdaq
$ 61.36
-0.14 -0.23%
Volume: 18.83M
Jan. 14, 2022 4:00p
P/E Ratio
22.82
Dividend Yield
2.41%
Market Cap
$258.79 billion
Rev. per Employee
$638,855
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/zigman2/quotes/209104354/composite
US : U.S.: NYSE
$ 98.88
-3.67 -3.58%
Volume: 16.72M
Jan. 14, 2022 4:02p
P/E Ratio
12.63
Dividend Yield
2.83%
Market Cap
$177.43 billion
Rev. per Employee
$888,103
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/zigman2/quotes/201417573/composite
US : U.S.: Nasdaq
$ 155.65
+3.03 +1.99%
Volume: 1.23M
Jan. 14, 2022 4:00p
P/E Ratio
17.35
Dividend Yield
1.44%
Market Cap
$25.74 billion
Rev. per Employee
$464,464
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