Pat McKeough responds to many requests from members of his Inner Circle for specific advice on investing in stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week one of our Inner Circle members asked us about a Canadian tech stock with an established niche market. Sierra Wireless produces modules that connect products to the Internet, a service that has earned it an international clientele. Pat examines the company’s business and assesses the potential risk of its small-firm acquisition strategy and the high percentage of sales revenue it spends on research.

Q: Hi Pat: Sierra Wireless—buy, sell or hold? Please advise.

A: Sierra Wireless (symbol SW on Toronto; www.sierrawireless.com), makes modules that manufacturers use to connect products to the Internet, with an estimated 34% of this market.

Web-connected products can be remotely monitored—and potentially fixed—before they cause a major breakdown.

For example, Sierra’s modules let doctors remotely monitor patients and help homeowners use their smartphones to control their home-security systems. They also help car owners send out distress signals while notifying automakers of possible defects. Sierra’s automotive customers include Chrysler and Toyota.

Other clients include Nestle SA, which uses Sierra’s equipment to maintain and monitor its Nespresso coffee machines in restaurants, hotels and offices. Smart electricity meter makers, like Elster, EDMI, Itron and Schneider Electric, also use Sierra’s modules to connect their products to the Internet.

South Korean and French companies are latest acquisitions in acquisition strategy aimed at smaller firms

In late 2013, Sierra bought the module business of South Korea’s AnyData Corp. for $5.9 million. It also acquired the machine-to-machine communication operations of France’s Sagemcom SAS for 44.9 million euros ($61.9 million) in August 2012.

Sierra plans to expand its main module business without major acquisitions, focusing instead on buying smaller software companies and firms that specialize in connecting industrial machines.

In the three months ended September 30, 2013, Sierra’s revenue rose 12.1%, to a record $112.3 million from $100.2 million a year earlier. Excluding one-time items, it earned $0.11 a share in the latest quarter, compared to $0.04.

Sierra holds cash of $188.4 million, or $6.12 a share, and has low debt. It spends a high 17% of its sales on research.

In the Inner Circle Q&A, Pat looks at Sierra’s prospects, and whether its high research spending will let it keep ahead in a competitive and changing market. He also examines the company’s earnings forecast for 2014 and 2015. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

When it comes to acquisitions, do you prefer stocks that grow with a more or less steady diet of smaller acquisitions? Or a stock that aims to make a big move forward with a large acquisition? Have you had stocks of either type that were notable successes—or failures?