Nano Index: Another major step for evolving technology sector
By Shawn Langlois, CBS.MarketWatch.com , Last Update: 5:00 PM ET April 3, 2004
SAN FRANCISCO (CBS.MW) -- Nanotechnology took another step toward legitimacy on Wall Street in the past week as Merrill Lynch launched an index designed to track various players with profits hinging on the oft-nebulous area.
"Like the Internet, nanotechnology risks being overhyped. Unlike the Internet, significant intellectual property and patents are barriers to entry, and yet barriers to adoption are low," said Merrill Lynch analyst Steven Milunovich in a research report that described the technology as the "next growth innovation."
Simply put, nanotechnology is the manipulation of materials on the atom- and molecule-scale that has some high-profile corporations like Intel (INTC: news, chart, profile), 3M (MMM: news, chart, profile) and ChevronTexaco (CVX: news, chart, profile) placing big bets on the nascent technology and its potential benefits. See full story.
"Building at the nano-scale enables new interactions in materials, semiconductors, and biological agents," Milunovich said. "The new scale allows manipulation on the cellular level, which should enable new discoveries in pharmaceuticals, biodefense and many health care industries."
Nuts and bolts
The Merrill Lynch Nanotech Index (NNZ: news, chart, profile) covers 25 companies whose fortunes are largely tied to nanotechnology, but excludes others that, while active in the area like IBM (IBM: news, chart, profile) and General Electric (GE: news, chart, profile), aren't dependant on the technology.
Breaking the gauge down by sector: Materials, electronics, biotech and semiconductors make up most of the index.
The largest firm, weighing in at more than $1 billion in market capitalization, is Cabot Microelectronics (CCMP: news, chart, profile) -- a chemical supplier to the semiconductor industry. Shares of the Aurora, Ill.-based company flirted with triple digits during a buying binge in 2001 but currently trade at $42.41.
On the biotech front, the index tracks Biosante Pharmaceuticals (BPA: news, chart, profile), Nanogen (NGEN: news, chart, profile), Pharmacopeia (ACCL: news, chart, profile) and the group's largest, SkyePharma (SKYE: news, chart, profile), which has nearly doubled in the past year.
Then there's venture capitalist group Harris & Harris, which has made all its investments in "tiny" technology starting back in the summer of 2001. The stock (TINY: news, chart, profile) has risen nearly seven-fold in the last 12 months, closing Friday at $19.60.
Headwaters (HDWR: news, chart, profile) is the lone representative from the energy sector. The company's subsidiary Hydrocarbon Technologies uses nanotechnology in developing and producing processes for more efficient fossil fuels.
Other notable companies in the index include the following:
Frequency Electronics (FEI: news, chart, profile), a maker of frequency, timing and synchronization products for voice, video and data telecommunications.
French drug delivery technology company Flamel Technolgies (FLML: news, chart, profile).
Chip equipment maker Ultratech (UTEK: news, chart, profile).
Veeco Instruments (VECO: news, chart, profile), a maker of equipment and tools used to work at nano-scale levels.
Merrill's announcement came as another in a line of developments that could signal the growing Wall Street acceptance of nanotech as the next big thing in technology.
The National Science Foundation doesn't doubt nanotech's future, having estimated that the market impact would exceed $1 trillion by 2015.
And President Bush gave the industry a clear boost when he signed into law in December the "21st Century Nanotechnology Research and Development Act," which provides $849 million for research and development in 2004 and $3.7 billion for the next four years.
After that, New York-based investment bank Punk, Ziegel & Co. launched a tracking gauge of its own covering 15 of these nanotech companies. A price gauge became available as of March 1 and can be viewed on the Punk, Ziegel Web site.
The Punk Ziegel Nanotechnology Index uses Dec. 31, 2003, as its beginning date with 100 set as the base value. Since the beginning of the year, the index has risen to 113.2.
Separately, First Trust Portfolios announced the launch of a first-of-its-kind unit trust nanotech portfolio that mixes the relative security of large cap names like Intel (INTC: news, chart, profile) and General Electric with some of the smaller, nanotech-centric companies like Nanometrics (NANO: news, chart, profile) and NVE Corp. (NVEC: news, chart, profile).
The trust was launched on March 10 at the IPO price of $10 and has added 55 cents since then.
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