Which surprise stocks will see the biggest wins from an Internet of Things?

 
Michael Bow
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Hot on the heels of a 75-page paper from analysts at Barclays dubbed the ‘Hyperconnected World: The digital invasion” comes another mammoth paper from banking analysts on the invasion of the internet.

Morgan Stanley have published a 96-page tome detailing in great precision on the Internet of Things, or IoT in short, and its impact on various corporate sectors.

Companies are getting very excited about the Internet of Things. Ericsson, for example, predicts there will be 50bn connected devices in the world by 2020, moving on from the types of devices currently connected to the internet – phones, computers – to a plethora of appliances.

Cisco is also breathless about its potential. It says that “99.4 per cent of physical objects that may one day be part of the Internet of Everything are still unconnected”, foreshadowing an incredible opportunity for growth.

All very well and good. But what does it mean for the real world? In its note, Morgan Stanley has attempted to ground this trend in some kind of reality and to identify key corporate sectors that will benefit the most.

There are the usual suspects – utilities, healthcare, medical care, automobiles –but there are a few surprises as well.

Insurance, for example, is one sector which Morgan Stanley identifies as a potential benefactor.

“We believe the Internet of Things could drive major changes in the business models and profit pools of insurers,” its analysts predict.

This is because of the growth of telematics, which are small monitoring devices which can be attached to a car for example, or a person. This could lead to the bespoke insurance policy for people based on their health condition monitored remotely by insurers.

Another surprise is agriculture. Morgan Stanley predicts the growth of something called precision agriculture, which some estimates from Monsanto suggest could be worth $20bn in revenues a year.

This technique would allow farmers more scope to monitor conditions such precipitation and temperatures, helping cut the variability of yields, which currently run at about 20 per cent to 30 per cent.

Sadly Morgan Stanley plays it safe in suggesting stocks to pick to benefit from the predicted growth in this trend and picks the usual tech suspects – Apple, Arm and Google are just some of the names suggested – rather than identifying specific sector related stocks.

It seems way off yet, but if the Internet of Things takes off like the growth of smartphones have over the past five years, then the 50bn devices could one day seem a conservative estimate by comparison.

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