Nanotechnology "The Next Stock Boom?"

"..Many industry observers see nanotech as the next major driver of innovation, the economy and the stock market, similar to the Internet of the 1990s. "
-- Randall Lewis, CFA

We sometimes approach our analysts for their thoughts on emerging market sectors we’re interested in. On rarer occasions, they come to us with intriguing insights of certain aspects of the market that have caught their attention.

At StockUpTicks, we’re technology buffs so anything new and unusual catches our eye. The fact that they think nanotechnology could very well change the way we live and motivate the market simultaneously doesn’t hurt either. Some are actually saying that nanotechnology could cause a market boom reminiscent of the Internet stocks.

So, when Analyst Randy Lewis of EquityNet Research, brought us his thoughts on nanotechnology, quite simply defined as “The science of the very small” our interest was duly piqued. As we read further into Randy’s short survey of this science we became, how shall we say it, “enamored” with the prospects of nanotechnology.

Now, being the ever-considerate distributors of stock news and info that we endeavor to be, we felt it would be best to get this in front of our info-thirsty readers. (That’s you.)

Keep in mind, we are not recommending nanotechnology stocks and have none planned as yet to put in front of you. This is just strong commentary from a good analyst on a very intriguing emerging science.

We think you’ll agree. Enjoy the piece and stay tuned for two new stock stories slated for later this week.
 
 

Will Nanotechnology Change the Way We Live?

According to Mihail Roco, nanotech advisor to the White House,  "Because of nanotechnology, we’ll see more changes in the next 30 years than we saw in all the last century.” 

By Randall Lewis, CFA
EquityNet Research

While the average investor might not know what nanotechnology is, one thing is clear: it is big business.  Nanotech has already gained favor with a number of venture capital firms and could likely be their darling this year too.  Government spending on research is expected to take a huge leap, and many industry observers see nanotech as the next major driver of innovation, the economy and the stock market, similar to the Internet of the 1990s. Government spending on nanotech began in 1998 with about $115 million invested.  Now, the Bush administration has asked Congress to appropriate $679 million for 2003 to help the U.S. catch up to technology development efforts of other countries in this field.  Already, European governments have spent $164 million on nanotechnology in 2000; for 2002-2006 they have allocated $1.2 billion.

Nanotechnology is an emerging technology that utilizes matter at the scale of one-billionth of a meter (one nanometer), or 1/75,000th the size of a human hair. Because there were no tools that existed to allow scientists to observe, let alone manipulate, individual atoms, nanotech did not emerge as an experimental science until the early 1980s, with the invention by IBM researchers of new microscopy techniques.  It has been defined as the precision placement, measurement, manipulation and modeling of sub-100 nanometer scale matter, somewhere from 4 to 400 individual atoms.  The advantage of this technology is that at this level of matter, laws of physics allow us to manipulate atoms, which combine to form molecules, the building blocks of our natural world; this allows scientists to produce new and better materials.  In other words, through the utilization of nanotechnology, we can make new, artificial materials with predetermined properties.  The technology is already being used from sophisticated medical purposes to simple household goods. 
 

Branches of Nanotech

Though research and development and potential applications of nanotech are extremely vast, it is typically segmented into five markets: biological; instrumentation (the tool makers); physical (better, faster products – such as computer hardware); materials development; and futuristic (which includes advertising).  Although nanotech labs today focus primarily on basic research, it is hoped that discoveries will soon apply to nearly all branches of technology. It has been predicted that nanotech will lead to new scientific advances, including mundane items such as scratch-proof glass, precision drug delivery systems, and computers the size of a sugar cube that could hold the entire Library of Congress.  Already, research points to revolutionary advances in materials, pharmaceuticals and information technology.

Nanoscale approaches to computing: Molecular computing, which uses single molecule switches to process data and quantum computing, offers the potential that the speed of integrated circuits will continue to double every 18 months, in accordance with Moore’s Law.  Already, using semiconductor nanotubes, researchers have assembled several basic electronic components, including transistors, the electronic logic gate at the heart of all computing.  Labs have also reported success with other nanomaterials, such as silicon nanowires.  This offers promise to the semiconductor industry, which expects to hit the theoretical limit of photolithography within a decade. 

Biology and natural sciences: Other research groups are exploring the intersection of nanotechnology and biology.  Nanotechnology offers the potential to recognize and control the bio-molecules that govern normal as well as diseased cell activity.  Implantable, intracellular sensing systems, together with custom DNA chips and smarter drugs hold the potential to transform biomedicine into a much more precise discipline that it is today.   While these companies have no real product yet, their valuations are skyrocketing commensurate with the perceived value that nanotech will bring.

Given that the number of potential applications for nanotechnology is far reaching, it is not surprising that there is significant interest in this field.  Future breakthroughs by nanotech companies are likely to bring about more investor excitement regarding the prospects of the industry as a whole and result in higher valuations for the entire group. Some of the better-known companies developing nanotechnology include General Electric (NYSE:GE), Agilent Technologies (NYSE:A), IBM (NYSE:IBM), Hewlett-Packard (NYSE:HWP), and Veeco Instruments (Nasdaq:VECO). 

To be practical in the real world, nanotechnology must scale up.  Today researchers assemble nanodevices one molecule at a time.  However, to be useful, a device would have to incorporate millions of molecules, precisely arranged.  Researchers are exploring this type of “self-assembly”.  DNA has been called the perfect example of a self-assembling machine: a single molecule that, under the right conditions, creates not only replicas of itself, but incredibly complex organisms.

With the caveats said, however, several facts remain clear.  First, the industry that is receiving a lot of attention, and stocks in this arena are being afforded lofty valuations.  In fact, any company with “nano” in its name will receive a higher valuation than a comparable firm that does not.   But fads often die hard; sales and earnings don’t.  Many of these highly valued stocks do not even have a marketable product; they are simply functioning as research labs in the hopes of discovering something innovative.  Does “dot.com” ring a bell?  All in all however, most indicators point to the fact that nanotech is a force to be reckoned with and could in fact change the way we live.  As the next wave of R&D is undertaken, it will be interesting to see where in fact we end up and what glimpses into the future we can garner.
 
 

Randall Lewis, CFA - EquityNet Research

Founder and Senior Equity Analyst of EquityNet, Randall Lewis has more than 10 years experience in security and portfolio analysis, as well as financial consulting and strategic planning.Prior to forming EquityNet, Mr. Lewis was an account executive at Coffin Communications Group, a Los Angeles-based financial communications firm. Prior to this, Mr. Lewis served as an equity analyst at SSI Investment Management, Inc., a $500-million, money management firm, specializing in sophisticated, hedged investment strategies, and serving institutional and high net worth clients. Previous to SSI, Mr. Lewis was a financial analyst for Griffin Financial Services, the securities brokerage arm of Home Savings of America, the largest savings and loan in the U.S. As part of his experience, Mr. Lewis has advised on strategic planning issues, facilitated comprehensive financial analyses, and developed and published financial reports, including business plans. Mr. Lewis has had several articles published, most recently in HFR Journal of Hedge Fund Research on the subject of merger arbitrage. Mr. Lewis received his Bachelors Degree with honors in Finance from California State University, Fullerton, and his MBA from the Anderson School of Business at UCLA. He is also a holder of the Chartered Financial Analyst (CFA) designation.

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