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To some, the so-called Internet of Things, the growing number of objects outfitted with sensors and linked to computer networks, is an exciting technological advance that could transform the way the world does business.
To money managers at 1492 Capital Management LLC in Milwaukee, it’s a good stomping ground for investors.
The Internet of Things is growing rapidly as sensors are embedded in increasing numbers of physical objects — from roads and fleets of trucks, to oil holding tanks and medical devices — that can sense the environment and communicate through network links.
“What’s happened is that wireless networks have become so ubiquitous and cheap, and sensors and video have become so inexpensive, that as a company, you can monitor anything you want,” said Joe Frohna, founding principal and portfolio manager at 1492 Capital.
Frohna likens the emerging information networks to a home security system that monitors a property and allows owners to interact remotely with its systems, except spread across the world.
“Think about all the things we’re monitoring these days. It’s only going to get more and more pervasive at the corporate level,” Frohna said.
A range of young companies has emerged to provide the software and technical capabilities necessary to exploit the technology.
They provide web-based and mobile systems that collect, analyze and deliver data. Among them are names like: CalAmp Corp. (CAMP, $26.26), which provides monitoring of storage tanks and cars for insurance companies, among other services; and Numerex Corp. (NMRX, $12.94), whose sensors and software do things like monitor parts in cranes and other heavy construction equipment, and provide information about parking space availability in cities.
“Not many people know about these companies yet. They’re just starting to get on people’s radar screens,” Frohna said.
Another company, Telular Corp., was acquired in June by Avista Capital Partners, a private equity firm.
Private equity firms have recognized the value in this space, and it wouldn’t take much for one of them to build a platform through acquisitions, said Rob Damron, co-portfolio manager for growth strategies at 1492 Capital.
For the most part, these companies are growing rapidly and have recurring revenue, high margins and cheap valuations, Frohna said.
Barriers to entry are not extremely high, but many of the existing companies have scale and have made a significant investment in infrastructure, Frohna said.
Among 1492’s portfolio holdings are two fleet-tracking companies that are leaders in the trucking industry and offer investors as much as a 50% potential upside, he said.
Fleetmatics Group PLC (FLTX, $42.85), Tallaght, Ireland, provides information about location, fuel usage, speed, mileage and other factors to mostly U.S. customers.
It went public in October 2012.
Fleetmatics shares have a 52-week trading range of $21.14 to $52.28. They could reach as high as $60 in the next 12 months.
MiX Telematics Limited (MIXT, $12.17), Midrand, South Africa, has a more international business, and went public more recently, Frohna said.
“It’s less well-known and has got more potential upside than the others,” he said.
There was some misunderstanding shortly after MiX went public in August related to currency translations, so its stock price dropped initially, Damron said.
That has been exacerbated by tax-loss selling, he added.
But the company has strong growth rates and cash flow, and trades at a low valuation, Frohna said.
MiX shares have a 52-week trading range of $11.05 to $20.03.
They could trade as high as $18 during the next 12 months, he said.
The biggest risk with owning shares of Fleetmatics or MiX is that these companies could face pricing pressure as their markets become more penetrated, but the influx of new customers as these technologies spread is expected to balance that, Frohna said.
The Journal Sentinel focuses on one Wisconsin money manager or analyst in this weekly feature, looking at a trend that helps investment pros make their decisions.