Technology

Top Stocks to Buy for the Connected Car Growth Theme

The commute is a dreaded, but necessary part of the American experience for many people. One thing making the long drives to and from work or on vacations much better for consumers is the advances in what is becoming known as the connected car.

In fact, according to a new research report from Piper Jaffray, the connected car has emerged as one of the key themes for 2014, with consumers eager to integrate their mobile phones into cars, creating a pent-up demand for connectivity in the vehicle. This includes everything from soon-to-be mandatory back-up cameras, streaming music services, high-resolution monitors, standard Bluetooth and Wi-Fi and a host of other new offerings.

The automotive market has become a huge sector for the top chip companies, and other tech companies are jumping into the race to supply needed components and services. Here are some of the top technology companies mentioned in the Piper Jaffray report that are big vendors to the automobile manufacturers for the connected car.

Broadcom Corp. (NASDAQ: BRCM) recently announced a wireless power receiver chip that can be incorporated into mobile devices with a connectivity device such as Bluetooth or Wi-Fi, which then can be paired to a Bluetooth Smart device that is built into a charging surface that can be positioned on a car’s central console. Investors are paid a 1.6% dividend. The Thomson/First Call target price for the stock is $32.49. Broadcom closed Thursday at $31.67 a share.

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Freescale Semiconductor Ltd. (NYSE: FSL) is a global leader in embedded processing solutions, providing industry-leading products that are advancing the automotive, consumer, industrial and networking markets. From microprocessors and microcontrollers to sensors, analog integrated circuits and connectivity, 45% of the company’s business is generated through the automotive industry, making the connected car a huge earnings contributor. The stock is rated Overweight at Piper Jaffray, but no price target was included in the report. The consensus target is $27.67. The stock closed Thursday at $22.51.

Micron Technology Inc. (NASDAQ: MU) posted very solid earnings for the most recent quarter and the stock was promptly down more than 15% in the tech sell-off, but it has rallied back strongly. The company, which is a leader in DRAM chip sales and is one of the top Wall Street memory picks, has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. Micron beat estimates by at least 35% in both cases, suggesting it has a nice short-term history of crushing expectations. With less exposure to the industry than Freescale, the company is still a strong player. No price target was given for this name rated Overweight. The consensus price target is $30.08. Micron closed Thursday at $28.58.

NVIDIA Corp. (NASDAQ: NVDA) remains Silicon Valley’s top graphics chip company, and many on Wall Street see the stock having the ability to soar over the next year. The company has been able to use its ability to leverage past investments with a more-controlled spending structure, which enables strong cash flow that is allowing a focus on capital return. That is currently estimated to be $1 billion next year. The company makes the processor that powers the high-resolution 17-inch screen going into the very hot Tesla Model S. Investors receive a 1.8% dividend. The consensus target is posted at $19.13. NVIDIA closed Thursday at $18.95.

ALSO READ: What Is Google Thinking With Its Self-Driving Car?

Pandora Media Inc. (NYSE: P) clearly is not the only one with a big desire to be in the music streaming business, but it is the current leader in installation and use in the automotive world. The Piper Jaffray team points out that with more digital displays in the dash, they expect a higher rate of Pandora adoption in the car, increased listenership and monetization of existing ad inventory. The stock has been knocked well off its March highs and has just started to rebound, allowing a solid entry point for interested investors. The company did have good news during earnings when it announced that content acquisition costs grew more slowly than revenue. Advertising revenue grew by 45% year-over-year, with total revenue jumping by 69%, thanks to a near-tripling of subscription revenue, compared to just 26% growth in content acquisition costs. The consensus price target is $34.44. Pandora closed Thursday at $25.42.

Qualcomm Inc. (NASDAQ: QCOM), like competitor Broadcom, is focused on Bluetooth and Wi-Fi. And it also has seen early adopters, such as Tesla, incorporate its cellular technology into cars. The technology chip monster also recently announced that software giant Microsoft plans to use Qualcomm chips in its new, smaller version of the Surface tablet. Investors are paid a solid 2.1% dividend. The consensus price target is $84.96. Qualcomm closed Thursday at $80.19.

Clearly consumer demand is driving faster and faster adaptations for the connected car. Combine this with the Google driverless car, and we may be very close to the Jetsons’ sort of transportation of the future. Now, all that has to be changed is to get all of this up in the air and off the freeways.

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