Nanotechnology Stocks Saw Big Gains In '03, Some Without Earnings
BY MIKE ANGELL
INVESTOR'S BUSINESS DAILY
2003 was a year to think small.
An investor who had bought stocks of companies with the term "nano" (Greek for dwarf) in their names would have seen a return of 309% for 2003. Nanotechnology, a general term for very small man-made objects, is catching investors' attention.
And why not? President Bush has pledged nearly $4 billion to nanotech research over the next four years.
And with nanotech products appearing on the market, many investors say its time has come.
But industry experts say today's investment opportunities are limited to high-risk ventures or scientific instrument makers. Many nano-named companies aren't working in the field of nanotechnology in the strictest sense. And some have yet to see any earnings.
"There's a lot of enthusiasm out there that we think is misguided," said Peter Hebert, co-founder of venture firm Lux Capital and publisher of the Forbes/Wolfe Nanotech Report.
The Nanotech Racket
Nanotechnology, which was first described in 1985, is still more science project than actual business. But many new products are touting nanotech as a breakthrough in design.
For instance, France's Babolat, a sports equipment company, sells a $229 tennis racket made of carbon graphite and a superstrong material called nanotubes.
Nano-Tex LLC licenses its nanotech coating to fabric mills. Sold under many different brand names, Nano-Tex-based stainproof clothes fetch $10 more than comparable nonstainproof items.
U.S. Global Nanospace Inc. won a contract to make lightweight, nanotech-based armor for Humvees. And Ski wax maker VailSoft Inc. sells a wax that uses nanosize materials for increased slipperiness.
But those companies are privately held or subsidiaries of other firms. So investors have been jumping into public companies with any sort of nanotech connection, even poor performers.
Two of those are Altair Nanotechnologies Inc. (ALTI) and Nanophase Technologies Corp. (NANX) Since Jan. 1, 2003, Altair is up 643% to 3.56 a share while Nanophase is up 251% to 10.11.
Both of them supply nanosize raw materials used to build other nanotech products. Both went public in 1997. Neither has shown a profit since then.
Scalable Production
One problem is that most firms need only sample amounts of nanosize raw materials, since nanotech projects are still mostly research. Another challenge is the lack of economical and consistent manufacturing for nanosize material.
Nanotubes, like the ones used in Babolat's rackets, can be made in batches measured only in ounces, not pounds. For nanotech to become a big business, the industry needs to come up with manufacturing processes that can yield high volumes needed for mass market items like tennis rackets.
"Consistency across manufacturing is not mature," said Alex Wong, a partner at venture capital firm Apax Partners.
There's money to be made in patents for large-scale manufacturing of nanosize materials, Hebert says. That's why large chemical and materials firms such as Dow, DuPont and BASF are working in the field.
"The value is in developing intellectual property around scalable production, not being a supplier," Hebert said. "Jeffrey Immelt said GE is going to commit a lot of research into manufacturing nanomaterials."
Intellectual property is what's lured investors to Nano-Proprietary Inc. (NNPP) The Austin, Texas, firm gained 1,506% in 2003 — but it still ended up at $2.73 a share following three money-losing years.
Nano-Proprietary has patents on electrical transmission through nanotubes. Makers of flat-panel TVs and computer monitors are looking to use nanotube structures someday, Hebert says. Nano-Proprietary may get to collect tolls for flat-panel products that use its technology.
"Nano-Proprietary has great intellectual property," Hebert said. "When they can reap the rewards on it remains to be seen."
Other nano names may not fit a strict definition of a nanotechnology firm. Nanometrics Inc. (NANO) manufactures chipmaking equipment. Even though chips are getting smaller, the chipmaking industry has yet to take advantage of the unique properties of nanotechnology.
"When you can use a chemistry set to grow a chip, now that's a radically different way to make chips," Hebert said.
Biotech company Nanogen Inc. (NGEN) works with nanosize objects like DNA and molecules. It recently received a patent for manufacturing nanosize devices. But Hebert says Nanogen's overall work relates more to biotech than nanotech.
But companies don't need nano in their names to grab investor interest for their work with nanotechnology.
Amcol International Corp.'s (ACO) main business is mining the clay used in everything from oil well drilling to kitty litter. An Amcol unit called Nanocor is transforming the clay into a nanosize material. Mitsubishi Gas will use the nanoclay in a North American plant.
Jay Harris, an analyst at Goldsmith & Harris Inc., says Amcol's recent rise has been fueled mostly by its overall profitability.
He acknowledges the money-losing Nanocor unit may have sparked some interest.
"There's an element of glamor in Amcol since investors started discovering Nanocor," Harris said.
So what are the most promising nanotechnology firms? Not surprisingly, most venture capitalists point to start-ups as the real innovators.
Wong cites Houston-based start-up Carbon Nanotechnologies Inc. as an example of a start-up coming up with better manufacturing methods for nanomaterials. Wong also points out a company he's backing called Nanomix Inc. It's building chemical sensors that can fit into computer chips. Nanosize chemical sensors would be much smaller, more powerful than current types of chemical sensors.
Hebert is backing a company called Nanosys Inc. It wants to use nanowires in building computer chips. Nanowires would let chips squeeze more circuits into a smaller package.
He also singles out Germany's Nanogate Technologies, which developed the nano ski wax sold by VailSoft. Nanogate wants to make a nanocoated ceramic that would resist dirt and grime.
The nearest opportunity in nanotechnology might be scientific instruments. Just as gold prospectors needed tools and clothes, scientists and engineers need ways to measure and observe nanosizes.
One firm making such products is Vecco Instruments Inc. (VECO) The Woodbury, N.Y., company sells microscopes to look at nanosize objects.
Vecco sells about $130 million worth of such microscopes a year, says spokeswoman Deb Vasser. She estimates a third of those sales are to firms doing nano research.
"It's been pretty steady growth," Vasser said. "They call us the pick-and-shovel company of nanotech."
Hebert says drug maker Pharmacopeia Inc. (PCOP) will be another beneficiary of nano research. The company makes a software program called Accelrys that's used to design nanotechnology. He also points to FEI Co., (FEIC) a Hillsboro, Ore., firm that makes measurement tools for nanosize objects. |
