The Nanotech Revolution
10/15/2004 12:00 am EST
Josh Wolfe is a specialist in the emerging field of nanotechnology. He is the editor of the Forbes/Wolfe Nanotech Report, one of the most exciting newsletters around. Here, he looks at the industry and some of his favorite investment ideas.
"One of the most exciting things we are seeing in nanotechnology is a term I created called simplexity— where you are able to take the complexity of a larger, mechanically-engineered device and integrate that into molecules themselves. We have products being developed right now in areas such as solar cells and sensors that take all the complexity of man-made devices and eliminate all the suppliers and components, because the molecules themselves have chemically incorporated them.
"We have other areas where we are taking biology and for the first time,in a new science, we are genetically engineering things like bacteria and viruses to express proteins on their coats. Those proteins in turn have an affinity for semiconductors and you can take the natural propensity of these natural organisms to self-assemble to then create devices. So we are effectively using biology to make computer chips for LCD screens or thin film transistors, in the same way we make beer, cheese, and wine that we all consume.
"Are we seeing a bubble in nanotech stocks? Starting in December 2003 when the President signed the bill supporting nanotechnology, stocks that appeared to be involved in nanotech rose sharply. Over the subsequent six months, we saw continued price appreciation. We saw nanotech featured all over CNBC and the covers of major magazines; we saw an exponential increase in coverage and media saturation. But I don’t think we’ve seen the start of a bubble yet. I think at some point we will but for now, most of the price appreciation we’ve seen in ‘nanotech’ stocks has largely been in what we label as nano-pretenders, or companies that are trying to apply ‘nanotech' to their names, such as we previously saw with companies adding a dot-com suffix . We'd caution that in many cases these companies have nothing to do with nanotechnology. But for the real players in nanotech, I don't think we are in a bubble. Here are some of our favorites:
"Accerlys (ACCL NASDAQ) is in the software side of the nanotech business. They have about $3.59 a share per cash, and the stock is trading at just over $5. We like this a lot, even just for its fundamental value. There’s about $80 million in cash on the balance sheet and the market cap is about $160 million. NVE Corp. (NVEC NASDAQ) has been a battleground stock between shorts and longs. We contend that the company holds the core intellectual property behind M-Ram technology.
"Veeco Instruments (VECO NASDAQ) is a long-term buy. Veeco is a major beneficiary of the capital flowing in to this market. There is typically a two-year time frame from when the government is allocating money, to when research centers get the capital to then make equipment purchases. The first thing that academic institutions do when they get funding for new markets, to outfit the labs, and Veeco is a prime supplier of the instruments that you need to nano-scientists. When you looking at all the starting phases of previous 'revolutions', it is always the people that are selling the ‘picks and the axes’ that are the early beneficiaries."
Editor's Note: Following The Money Show, Josh Wolfe issued this additional commentary on Veeco: "Veeco preannounced a third quarter that fell short of projections, highlighting the compound semiconductor business as its Achilles heel. While the lack of sales visibility is a real concern, we continue to advise long-term investors to look beyond any near-term industry hiccups. With a strong franchise in nanotech research tools and semiconductor metrology, Veeco is well positioned once capital spending picks up. Its resilient nanotech business serves as an excellent hedge against any pronounced downturn. Trading at just 1.7x its low-end estimates for 2004 revenues, we believe today's price represents an excellent opportunity to build a position in a core nanotech holding."