Newsletter Watch: Big gains from "small" ideas
This week, we feature three advisers who see large potential gains from the “smallest” of ideas—nanotechnology. This broad field involves the study and manipulation of matter at an atomic level. Given that this is a new and developing field, investors in nanotech should have a long-term view.
For those willing to incur the higher risks of selecting an individual stock in the nanotech space, we turn to two emerging growth experts. First, Gregg Early, editor of The Real Nanotech Investor, considers Maxwell Technologies Inc. (Nasdaq: MXWL), a stock with a market cap of $246 million, among his favorite speculative buys.
“The company specializes in a very arcane field, even by nanotech standards. Maxwell is one of the few companies involved in developing capacitors and increasingly, ultracapacitors,” he said. “This new generation of capacitor has the potential to revolutionize motive and stationary power storage and distribution as we know it.”
According to Early, the company was recently awarded a contract by Mercedes Car Group to design and produce ultracapacitors for an advanced engineering hybrid-electric drive train program that increases fuel efficiency and reduces emissions.
“This is also a very good sign for Maxwell because its new CEO, David Schramm, hails from the auto industry,” he said. “Landing a deal with a major innovator like Mercedes is an optimistic sign of things to come.”
Early said that the company's technology is also being used in programs with German wind power companies and has also made great progress with power distribution companies in China.
“Things are just beginning in this unfolding story,” the adviser said. “This is a good place to buy the stock.”
Ian Wyatt, editor and publisher of Rising Star Stocks, a sister publication of SmallCapInvestor.com, also offers a pick among individual nanotech firms. According to Wyatt, “Nanophase Technologies (Nasdaq: NANX), with a market cap of $140 million, is an industry leader in nanotech materials, offering an affordable high growth opportunity in an emerging market.”
The company's technology is based on nanoparticles, which Wyatt said have unique properties due to their very small size.
“One of the biggest challenges to nanomaterial manufacture is the ability to deliver nanoparticles in a solution to ensure consistent dispersion in application. Nanophase has developed technology to achieve highly stable dispersions in aqueous and organic solutions, which offers significant market advantages.”
According to the adviser, Nanophase already has large and established partners including BASF, Rohm & Haas Electronic Materials, Altana Chemie (also a distributor) and Alfa Aesar. “Each is a leader in its respective field, with recognized, global brands,” Wyatt said.
“Nanophase has realized its tenth consecutive quarter of revenue growth. For the second quarter ending June 30, 2007, total revenue increased to $4.1 million, up 73%,” the adviser said. “The company has entrenched revenue streams, solid revenue growth, strong free cash flow and relationships with world-class chemical companies.” Wyatt has a "Buy" rating on the stock and a price target of $8.00.
For those concerned with the risk of a single stock in the nanotech area, we turn to Josh Wolfe, who offers several plays on diversified nanotech portfolios.
In the Forbes/Wolfe Emerging Tech Report, Wolfe explains, “One way for individual investors to gain exposure to nanotech is to invest in publicly traded investment firms making private VC-like investments such as Harris & Harris (Nasdaq: TINY) and Arrowhead Research (Nasdaq: ARWR).”
Both investment companies are “small caps” in their own right; TINY has a market cap of $241 million, while ARWR has a market cap of $182 million.
“Arrowhead and Harris & Harris have both grown about 46% annually since 2002 and both market caps are around $250 million. Arrowhead tends to invest in really early stage companies and TINY tends to invest in syndicates of other top venture capital funds,” Wolfe said.
“While you might not be able to get into those top-tier funds, TINY offers a neat way to slip into its deals,” the adviser said. “I know these guys first-hand and the kinds of bets they’re making are heavily skewed to the upside. They might lose 100% of any investment on the downside, but they're swinging for 500% or more on the upside.”
Wolfe said that investors might also want to invest in indexes or ETFs like the PowerShares Lux Nanotech Portfolio (ASE: PXN). For full disclosure, Wolf said that he is an investor and board member of Lux Research, which assisted in the selection of stocks included in this exchange-traded fund.
“A low-cost nanotech ETF also provides diversification and sector representation,” he said. Wolfe pointed out that the PowerShares Lux Nanotech Portfolio, have grown at an annualized rate of 10.3% since its inception late 2005.
Note: Nanophase Technologies is in the portfolio of Rising Star Stocks, an independent investment advisory published by Business Financial Publishing LLC, the owner of SmallCapInvestor.com. Nanophse was added to the RSS selection of growth stocks on Aug. 26, at a price of $6.60 per share.
