Cisco and the "Internet of Things"

05/20/2014 8:00 am EST

Focus: STOCKS

Jim Powell

Principal Analyst, Global Changes & Opportunities

Our latest featured stock is a tech firm that fell out of favor when the Internet matured and competitors entered the company’s market for routers and other network products, points out Jim Powell, editor of Global Changes & Opportunities Report.

Nevertheless, I think Cisco Systems (CSCO) offers great potential for future gains. The company’s leaders didn’t waste time feeling sorry for themselves.

Instead, they created products for the newest and most exciting network development to come along in many years: the “Internet of Things,” or simply IoT.

IoT will link every type of device that contains a computer chip and networking capabilities. Manufacturers are pioneering IoT by putting their production machines online with each other and with their office information systems.

The result is integrated networks that coordinate the actions of the machines, maximize production efficiency, manage raw material and product inventories, place orders, set delivery schedules, and perform many other functions.

IoT will soon be extended to homes, automobiles, schools, farms, the electric grid, highway signals, and just about everything else.

My neighbor has a new microwave oven that talks to him. He also plans to buy a “smart” refrigerator that will emphatically remind him every morning to buy more beer.

My new programmable washer and dryer don’t talk to me, but I suspect they could if they wanted to. Since nearly everyone has Wi-Fi in their homes, most IoT devices will go online automatically.

IoT has incredible potential, but it is also a little scary. Some critics worry that IoT is the beginning of Skynet, the fictional computer system that took over the world in the popular “Terminator” movies.

That’s probably overstating the risk, but perhaps not by much. All that’s lacking are implantable computers for humans, but they are on the way. Google Glass is the first step in that direction.

In addition to new products, Cisco has $50.6 billion in cash and liquid investments, low debt, and a 3.30% dividend yield. The company is also buying back $15 billion in stock that will further boost its value. I think Cisco Systems looks very good for long-term investors.

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