People typically like the concept of things coming in threes: three square meals, three parts to a story (beginning, middle, and end), and omne trium perfectum, Latin for everything that comes in threes is perfect, or, every set of three is complete. We love the Three Stooges, Three Little Pigs, and the fact that only three ghosts visit Scrooge in Charles Dickens's A Christmas Carroll. Investment opportunities that come in threes are simply a bonus and that is why the three hi-tech sectors of the M2M market, 3D printing, and augmented reality are so exciting and worth investigating further. All three are indeed disrupters to their sectors with innovative products that should continue to drive sales for many years.
Since the article, M2M, 3D Printing and Augmented Reality: Promising Hi-Tech Sectors With Room To Grow, was published in Seeking Alpha, there has been significant growth and developments at some of the companies in these sectors. Still in the early stages of growth, these disruptive technologies have received a great deal of attention and have the potential to blossom into major industries. All three technologies can be used in multiple industries for both private individuals and corporations. That is one reason why estimates call for a potential market size beginning in the billions of dollars.
The sector of machine-to-machine (M2M) connections, which is also known as the "Internet of Things," is considered to still be in its infancy yet has covered a lot of ground thus far. In fact, some estimates of growth are staggering, while some might be exaggerated. In a recent article, IDC analyst Carrie MacGillivray wrote that "projections of 50 billion connected devices by 2020 may be a bit aspirational. If you carve out censors the total is more like 100 million. M2M is just at the starting gate. There will be a lot of growth over the next decade, but ecosystems of vendors, partners and standards need to be built."
M2M (machine to machine as explained in an article by Tim Crosby on howstuffworks.com) is basically information and data flowing from a machine, through a gateway to a system where it can be reviewed and acted upon. M2M is used by many industries via numerous devices. It is all about enabling the flow of data between machines and machines and ultimately machines and people. M2M involves the use of wireless technology and applications to create communication networks in buildings, electrical grids, homes, manufacturing, health care markets and many others by using a device (such as a sensor or meter) to capture an event (such as temperature or inventory level), which is relayed through a network (wireless) to an application (software program) that translates the captured event into meaningful information. For example, items that need restocking. A complete definition of the M2M market is also provided at Whatls.com.
Being a diverse sector, there are some companies that focus solely on M2M and others that have some overlap. In either case, the long-term investment opportunities are significant.
One innovative company to watch is Numerex Corp. (NMRX) that provides on-demand and interactive M2M enterprise solutions for the enterprise and government markets worldwide. It supplies the cable TV industry with new home security/home automation offerings as a provider of wireless backup for the security alarms installed by the large cable companies. This is one of those companies operating in two segments: M2M and other services.
The company sports a P/E ratio of 25.2, higher than the S&P 500's current P/E ratio of 17.7. Numerex has a market cap of $217.6 million and its revenue growth has slightly outpaced the industry average of 14.6%. For the second quarter, revenues rose by 21% compared to a year ago. Total subscriptions grew to 2.17 million, compared to 1.64 million in same quarter of 2012 and net new subscriptions were 139,000.
Another company to watch in the world of M2M is Sierra Wireless, Inc. (SWIR). Sierra Wireless, together with its subsidiaries, provides cellular wireless solutions to the M2M and connected device markets in North America, Europe, and Asia Pacific. The company develops cellular modules that enable machines to connect with each other through cellular networks operated by major wireless carriers. The company recently completed the sale of its assets and operations related to its AirCard business.
Sierra Wireless is on the move with profitable M2M plays. It acquired AirLink in 2007, Wavecom in 2008 and Sagemcom in 2012 and successfully integrated them into its existing M2M business. The company's second-quarter results reveal that revenue was $109.6 million, a 14.9% rise from $95.4 million the same year-ago period, and up 8.1% compared to $101.4 million in the first quarter of 2013. In the same period, revenue from OEM Solutions was $95.1 million, up 14.1% compared to $83.3 million a year earlier. Revenue from Enterprise Solutions was $14.5 million in the second quarter of 2013, up 20.0% from $12.1 million in 2012's second quarter. This bodes well for long-term investment as the company continues to capitalize in this sector.
Another firm, Iridium Communications Inc. (IRDM), recently announced a multi-year partner agreement with CalAmp, a leading provider of wireless products, services and solutions to provide manufacturers with reliable, high performance, compact devices facilitating a wide range of satellite machine-to-machine (M2M) services, data rates and real-time, global communications solutions. The partnership will provide communications solution that allows companies in the heavy equipment, agriculture, forestry, mining and construction industries to have greater communications access across the globe.
3D printing is an explosive industry with many of the sector's companies already delivering handsome returns to investors. The industry is still in its infancy with plenty of room for growth for innovative companies.
3D Systems Corp.
One such company, 3D Systems Corp. (DDD), is a maker of printers that produce three-dimensional objects. The company is a pioneer in the 3D printer market, providing devices that layer on materials to create a wide variety of customized objects from small toys to aircraft parts, and has made great strides in the health field. 3D Systems' second quarter results show that revenue grew 45% from the prior year to $120.8 million on a 108% increase in printers' and other products' revenue and 30% overall organic growth resulting in GAAP earnings of $0.10 per share and non-GAAP earnings of $0.20 per share.
The second quarter marked the 14th straight quarter of double-digit sales growth for 3D Systems. In the first six months of 2013, the company generated $12.8 million of net cash from operating activities. The second quarter ended with $349.3 million of cash on hand, representing a $193 million increase versus the end of 2012. This includes $272 million net proceeds from the common stock offering and $86 million paid for acquisitions.
"We have come to believe that right now is a unique moment in our business," 3D Systems CEO Avi Reichental said in a recent conference call with analysts. The level of interest in his company's printers, he said, is "unprecedented."
Other players include Sigma Labs (SGLB.OB) and Swedish company Arcam AB (AMAVF.OB) featured recently in a Motley Fool article. Author Pamela Peerce-Landers wrote that it is one of the few additive manufacturers that prints in metals, though 3D Systems just added metal printing with its acquisition of French printer Phenix Printers, a leading global provider of Direct Metal Selective Laser Sintering 3D printers, based in Riom, France,
Through acquisitions such as the purchase of Phenix Systems, 3D Systems will continue its growth spurt which I believe will provide favorable long-term returns for investors.
Organovo Holdings and Bioprinting
Also making a splash in the world of 3D printing is Organovo Holdings, Inc. (ONVO), which develops three-dimensional bioprinting technology for creating functional human tissues on demand for research and medical applications. In a unique position, Organovo faces no competition in that it combines both 3D printing and regenerative medicine. This company, which recently up-listed to the NYSE MKT, is in a market on its own that other 3D printing companies will eventually want a piece of and that may take the easy way into it by purchasing Organovo. Though no real chatter yet, both 3D Systems and Stratasys Ltd. (SSYS) would profit nicely if they acquire this little jewel. Organovo uses living cells as raw material to build organic, living, three dimensional tissues that can be used in human patients making the company like no other.
However, since this company has an unusual charm, it attracts investors looking to get in early while some are shying away until products and research can be proven creating some volatility in the stock price, which has fluctuated from $1.55 to $8.50. I view this company as one to get in on now and hold onto.
Augmented reality, the new technology that blurs the line between what's real and what's computer-generated by enhancing what we see, hear, feel and smell, is a sector that is becoming more mainstream than ever before. Media coverage of Google Glass and interviews with augmented reality experts is putting this sector in a whole new light of understanding. There are, of course, some big boys in the augmented reality field working to push out products such as Apple, Inc. (AAPL) and Microsoft Corp. (MSFT), but I believe it is some of out-of-the-spotlight firms such as Infinity AR (ALSO.OB) and Nokia (NOK) that will experience major growth spurts in this sector.
Nokia in the Game
Nokia, currently trading at around $4.14, has been dabbling in augmented reality for some time now and recently released its augmented reality job search. The company also recently announced that it has completed its purchase of Siemens' interest in Nokia Siemens Networks. Nokia is working with Microsoft on a Windows phone and the company's smartphone market share is increasing. Based on what this company has accomplished with phones and is now achieving with augmented reality, I see it also as a long-term hold.
Infinity AR and Wearable Computers
Infinity AR is one of those companies that is becoming difficult to ignore. The company is known for its platform that can connect Google's Android Glasses to an iPad or iPhone, as well as open users to a new dimension of a world not seen until now. Infinity AR provides the all-in-one software platform for the various hardware products used to experience augmented reality. One of those products are the digital glasses that allow users to experience concerts, sports and even gambling as if they were actually at the event. The company announced recently that it has invested and formed a strategic alliance with Meta, a wearable computing augmented reality company and the leading hardware developer for augmented reality products, and the developer of mega-view augmented reality glasses.
Experiencing this futuristic product is often difficult to explain in words which is why Infinity AR created a video that allows the viewer to actually see what they can experience which drew in over 1.5 million viewers the first week it was posted. The stock is trading less than 50 cents per share. Though a speculative stock and assuming your heart can handle the risk as management executes its vision, this may be worth a look as this sector continues to mature and grow.
In writing, there is a "Rule of Threes" that is a principle suggesting that things that come in threes are more satisfying, inherently funnier, or more effective than other numbers of things. Having a choice of three is better than one and makes decision-making easier than two. However, when it comes to investing and all three are great choices, it becomes a no-brainer decision. The three sectors of M2M, 3D printing, and augmented reality offer great potential for long-term growth of investments. All three are poised to have initial growth spurts and then continue on a path of strong growth for years to come.