If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
Nano Favorites: A Tiny Triple
04/25/2003 12:00 am EST
"I have never been more bullish on nanotech, and everyday I learn of more new nanotechnology breakthroughs," says Josh Wolfe, editor of the Forbes/Wolfe Nanotech Report, arguably the most interesting and far-sighted business-investment-technology newsletter published today. Here's Wolfe's latest overview:“Can you make money in nanotech? One of our portfolio holdings, Flamel Technologies (FLML NASDAQ) rose 420% since August based on a new deal with GlaxoSmithKline that its nanoscale drug delivery system has outpaced expectations in human studies. I continue to like FLML as a way to play nanoscale breakthroughs in drug delivery but would not recommend making additional purchases at these prices because I feel it has become over bought.
“However, here are two investment ideas for long-term investors looking to capitalize on today’s opportunities. A large piece of the more than $3 billion spent on nanotech research in 2003 will go towards buying the necessary instrumentation to image and manipulate nanoscale matter. Which equipment companies are poised to grab the lion’s share of the dollars, euros, and yuan for the escalating nanotech build out? Veeco Instruments (VEECO NASDAQ) and FEI (FEIC NASDAQ). Veeco and FEI also boast booming research businesses. When New York Governor George Pataki broke ground on the $150 million Albany Nanotech facility, Veeco machines were the first pieces of equipment to be installed. Stanford University partnered with FEI to outfit its new advanced nanotech science division. Both stocks also trade at reasonable valuations. VECO trades at 1.59 times sales and 1.54 book value. FEI is valued 1.63 times sales and 1.7 times book.
NASDAQ) is made up of two units focused on drug discovery and development: its
Accelrys unit (nearly 70% of revenues) and its Drug Discovery Labs. The nano-sized valuation of Accelrys
effectively serves as a barrier for any new market entrants. How much would it cost to recreate the
business that Accelrys has assembled?
Strip out the $141 million in cash and equivalents the company had at the
end of 2002. With revenues of
$124 million, no debt, little cash burn (in a weak 2002, the firm lost less that
$12 million), and a blue-chip list of customers, the Street values both the software
and drug delivery business at just $55 million. Legg Mason biotech analyst
Stefan Loren says the drug delivery business is worth more than $1.50 a share,
leaving the value for the entire software business at less than $1 per share, or
roughly $20 million. Keep in mind, this software business did $95 million in
sales last year with a 77% gross margin. So you are effectively buying those
sales for $1 per share. Wall Street likes PCOP’s newfound ability to reign in
costs and new Accelrys president Mark Emkjer. While I would caution against
expecting an immediate return, PCOP has limited downside ($6 a share) and lots
of upside potential in coming years.
Legg Mason expects the firm to lose $0.07 in 2003 before reaching
profitability in 2004. I would build positions in this stock under
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