What Do I Need to Know About RFID Stocks?

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Every other week, I get bombarded with investment pamphlets tooting RFID stocks. I tried to do some research on them, but there isn't much material out there. Are these stocks worth my time? -- B.

RFID, or radio frequency identification, is one of those "hot" technologies that are often pitched to individual investors as the next great "growth" opportunity. But as with any fast-moving industry, there are some things to watch out for with RFID. Here's what you need to know.

The Technology

RFID is a system that uses small chips (called RFID tags) to identify items wirelessly. Despite the fact that RFID may sound like some kind of gizmo from the future, you might be more familiar with this technology than you think.

Today, RFID is used in all sorts of consumer applications. That E-Z Pass you use to get through tolls quickly uses it, credit cards like the American Express (AXP) "Blue Card" and Exxon Mobile's (XOM) "Speedpass" use it, and if you've been issued a U.S. passport in the past year, guess what -- you've got an RFID tag there too.

Governments are finding that RFID provides an effective solution to their security concerns, and companies like Wal-Mart (WMT) are starting to use RFID to manage their inventory control systems with better efficiency and lower costs. So as ubiquitous as RFID is becoming, would now be a good opportunity to make a play for some RFID stocks?

There are a few things that make RFID worth a look: it's gaining momentum in industry and government, it's a proven technology and it's well-suited to our economy right now.