Wolf's Stock Pick(s) for February 22, 2016 - Invensense (INVN) and Sierra Wireless (SWIR)

Normally the week after I discuss a particular market segment - like last week's Internet of Things post - I like to dive a bit deeper into one particular stock within that segment that I think is particularly well suited for investing in.  Unlike many of the other investing blogs you could be reading, I don't go into endless detail on the financials - because I'm not a financial expert.  Instead I explore why the company I'm interested in is on the cusp of something great based on my oracular powers of prognostication.

(Translation:  I'm a gadget freak who's seen lots of tech come and go, and I'd like to think I'm starting to get a hang of "what's next".  The stocks I drone on about are the stocks I think are going to ride one of those waves into prosperity - and hopefully take us along for the ride).

This week's blog is going to review not one, but two stocks that are players in the Internet of Things - two stocks which I believe complement each other nicely, both in terms of product as well as investing potential.  I briefly touched on both Invensense (INVN) and Sierra Wireless (SWIR) in last week's post on the Internet of Things (IoT).  This week we're going to talk a little more about why these two companies in particular are poised to perform well in the coming revolution.

Invensense

Source:  Invensense

Invensense is a MEMS manufacturer (we've talked about those before) - they primarily manufacture 6-axis motion sensors, which are used in everything from phones to tablets to drones.  These sensors tell those devices how they are moving through the environment by detection changes in orientation as well as compass directions.  These sensors can also be used in wearable/fitness devices like the Fitbit or Apple Watch, or to improve images taken by digital cameras by providing the information needed to compensate for motion in you or your camera - if your hands are shaking, for example, or if you are taking the photo in a moving car.  Speaking of cars, motion sensors are used extensively in modern automobiles as well - enabling stability control systems that keep you on the road even in poor-traction conditions as well as triggering air bags in sudden decelerations.  Invensense also makes audio sensors - microphones, really - that can be used to detect and record sound.  Just recently they announced another type of sensor that they are bringing to market - an improved fingerprint sensor that can actually embedded inside a screen, without blocking any of the viewing area.  Imagine having that extra space at the bottom of your iPhone as additional touchscreen instead of dedicated to the TouchID sensor/Home Button!

There are several companies that make six-axis motion sensors - notably ST Microelectronics (STM) - what makes Invensense's sensors better?  The answer is that they don't just sell sensors, they sell complete solutions.  They spend quite a bit of time on the accompanying software and API's (Application Program Interfaces) that are invoked by the devices incorporating their sensors - things like a positioning library that allows the motion-sensing chips to do a magical trick called inertial tracking, so that even when the GPS signal for the device itself is weak the Invensense 6-axis sensor can make an educated guess as to where the device is.  Just having fantastic sensors alone isn't enough - by adding in extras like their Motion Apps™ software, they enable developers - even makers - to do some pretty cool things with the data the sensors collect.  For example:  currently, gesture recognition requires that the user actually be touching a surface - e.g. an iPad screen.  The Invensense platform - sensor plus software - could, for example, enable the development of very sensitive sensor gloves that could be used to swipe your way through an interface much as Tom Cruise did in Minority Report.

Invensense stock has taken a beating the past year - it's currently around $7.35/share, which is a golden buying opportunity, in my opinion.  They are already a supplier to Samsung, Apple, and a slew of other vendors; their newer finger sensor technology is a killer piece of technology that hasn't even begun to show up in their revenue stream yet; their profits are increasing year over year.

Sierra Wireless

Source:  Sierra Wireless

While Invensenese makes the sensors for Internet of Things gadgets, Sierra Wireless makes the connectivity systems for them - primarily high-end radio chips and software (again, an entire platform that is easy to prototype with and deploy for the vendors manufacturing the Internet of Things devices) using 2G, 3G, 4G, and LTE technologies.  They also manufacture smart SIM cards that can store all of the user account information needed to communicate with one or more networks.  Their platform is designed for mobile communications - not just cell phones, but dedicated communications systems used by police forces, private companies, or rail lines to stay in close contact.  Their Legato™ platform enables powerful, secure communications using very little power - ideal for mobility.

Many of us think of Internet of Things devices as being things we keep in our houses - like the Withings Scale I mentioned last week.  It's true, many of our devices probably stay at home - and are thus almost always going to be within range of a WiFi or Bluetooth connection.  So why am I so excited about Sierra Wireless instead of, say, Texas Instruments (TXN), which manufacturers some of the best embedded Wifi/Bluetooth chips?

To be honest, I am excited about Texas Instruments, and they are on my to-buy list.  Texas Instruments, however, is a well established company, and while I do expect them to profit from the IoT revolution, Sierra Wireless' core competency is connectivity platforms - and the type of connectivity (2G through LTE) that is required for truly mobile connectivity.  That market has yet to really boom - think of how many cars are equipped with WiFi today, and how many are likely to have it over the next 10 years.  That WiFi is simply using an embedded cellular link in the car connected to a WiFi hub that rebroadcasts the signal locally - inside the car.  So any truly connected, mobile device has to have a system like the ones that Sierra Wireless manufactures.

As before, they certainly aren't the only manufacturer making cellular connectivity chips - Samsung (SMSGF), Sony (SNE), Sequans (SQNS), and Ericsson (ERIC) are just a few.  Again it's the fact that the offer a nice, easy-to-use platform that makes them so compelling.  If you've explored the links above you'll already know that their Legato™ platform is actually open source - meaning that once you buy their hardware, you have free access to a world of development resources, making it even easier for rapid prototyping and development.

The other reason I like Sierra Wireless is that they are already selling to big names like Panasonic, AsusTek, Verizon, Sprint, and AT&T.  One of the truisms I learned during my 14 years in the corporate world is that it's easy to sell to someone you've already sold to - and given that, Sierra Wireless should have a pretty solid sales pipeline for the foreseeable future.

Sierra Wireless stock has also been hit by the recent downturns in the stock market, dropping from a peak close to $49/share down to about $11 a share currently - which to me says that this is a great time to buy.  My feeling is that this stock has some serious legs, and the growth should continue for a long time to come.

That's it for this week - as always, you should alway do some homework of your own before buying any stocks.  Consider everything above a launching point for your own studies!

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Disclaimer - I am not a financial expert and I am not responsible for any losses - or gains - you may make if you make decisions based on the information posted here.  If you do make money, please feel free to let me know!

Disclosure - Wolfgang Rumpf owns shares in Apple (APPL), Invensense (INVN), ST Microelectronics (STM), and Sierra Wireless (SWIR) mentioned above, and intends to purchase shares in Texas Instruments (TXN) within 12 months.