A couple of months ago, the fund planners at Invesco
PowerShares closed the book on one of the most unusual chapters
in investing history, announcing a move to shut down the
PowerShares Lux Nanotech Portfolio exchange-traded fund (
). A lack of interest was the main culprit in its demise.
#-ad_banner-#For many investors, the move signaled the end of
the decade-long hype around nanotechnology stocks. Back in 2006,
with nanotech mania in full bloom, Businessweek predicted that
this emerging technology would
represent a $2.6 trillion industry by 2014
That prediction overestimated the industry's potential by at
least $2.5 trillion.
A decade ago, the phrase "nano" was applied to many hot new
technology developments. By some estimates, more than $20 billion
in government and corporate research funds were invested in the
burgeoning technology. The premise was simple. Scientists had
found ways to develop ultra-tiny particles that could be used in
a range of biotech, industrial and cosmetic applications.
We're talking smaller than "micro"... smaller than "milli."
You have to get far, far smaller than the width of a human hair,
to one-millionth of a meter, to get a sense of just how tiny
nano-size particles are.
So what went wrong with nanotech? Many companies found it hard
to develop products based on such small form factors, and most
products that did emerge in the field never saw overwhelming
demand. A quick snapshot of where the remaining nanotech stocks
trade in relation to their all-time highs paints a sobering
picture. With the exception of
FEI Co. (Nasdaq:
, not one of these firms lived up to the hype.
Altair Nanotechnologies (Nasdaq:
exemplifies the industry's challenges. The company aimed to apply
nanotechnology to lithium batteries, helping electrons to flow
more freely, but annual revenues never even reached $10 million.
Ironically, a new and much-hyped technology
known as graphene holds the same promise
, and in a few years we may see huge sums of money chase after
graphene companies, just as we saw with nanotechs.
Yet just as most investors have written off the notion of
nano-investing, the underlying technology is being seeded in a
widening range of applications. Many industrial firms such as
already derive solid recurring revenue streams from
nanotechnology and are
spending heavily on new products
, which bodes well for the companies that make the tools to help
further this technology's development.
FEI, for example, is expected to reach the $1 billion revenue
mark this year for the first time. FEI's equipment helps other
firms analyze and develop nanotechnology-based products and
chemistries, mostly in the semiconductor industry. The company
has delivered on the promise of nanotech, but shares appear fully
valued, as top-line growth is around 10% and shares trade for
more than 20 times next year's earnings.
A more intriguingly valued stock is
Flamel Technologies (Nasdaq:
, a biotech firm that has developed a range of drug delivery
methods to deliver nano-sized particles into the bloodstream.
Though this firm could never live up to the nanohype of a decade
ago -- and a decade of annual operating losses will wilt any
investor's confidence -- shares are starting to rebound as key
products start to reach the market.
In addition to its existing Medusa and Micropump drug delivery
products, Flamel has another six products being tested in
clinical trials. The company's Bloxiverz is a
nanotechnology-based drug formulation that helps anesthesia to
penetrate muscle tissue during surgery. Other drugs in
development also utilize the company's nano-based delivery
Analysts expect Flamel's sales to triple this year, to more
than $65 million, and approach $175 million by next year. For a
company that has never had more than $42 million in sales at any
point in its history, those are meaningful numbers. As an added
kicker, shares trade for less than 10 times consensus 2015
Investors giving a fresh look at nanotechnology stocks may
also want to consider
, which is developing 3-D printers to create human tissue at the
nano molecular level. As is the case with other 3-D printing
stocks, shares of Organovo have fallen far from the 52-week high
as industry hype as evaporated, providing a fresh entry point
into this promising new technology company.
Risks to Consider:
As noted earlier, carbon-based graphene offers similar
properties as nanotechnology, and may end up acting as a
replacement technology in various applications.
Action to Take -->
The hype and froth is completely gone from the nanotech sector,
but real business models have emerged. Research engineers
continue to pour of hundreds of millions of dollars into the
technology, so it pays to track the industry's developments in
search of the next potential major breakthrough. From a current
investment perspective, Flamel Technologies appears to offer a
nice combination of growth and value.
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