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Few new technologies seem to generate as many headlines these days as nanotechnology, the field of building things at scales of billionths of a meter.
Major breakthroughs are coming at a torrid pace. Earlier this month, researchers in Texas and Australia reported success on an experiment to build carbon nanotube sheets they believe could be of use in the technology industry. Meanwhile, scientists in San Diego and South Carolina developed nano-scale structures that can function as electrical switches.
The good news for potential first-time nanotech investors isn't limited to the labs. Nanotechnology has been a big disappointment in the market, so far at least, so the price of admission to this high-risk but intriguing sector is relatively low right now.
An index of nanotechnology stocks launched by Merrill Lynch last spring has shed about a quarter of its value in the past 10 months. Initial public offerings also have fared poorly. A much-anticipated offering from Nanosys, a Silicon Valley firm with a large portfolio of nano-related patents, didn't make it to market as planned last summer.
It may seem counterintuitive, but the lackluster market conditions may be a good thing for investors who haven't already sunk a lot of money into nanotech. After all, the worst time to buy a stock is at its peak, and current valuations aren't consistent with a market top.
So, if the fear of nano-sizing your wallet hasn't already put you off, take a look at this short guide that will show you where to look and what to watch for when choosing nanotech investments:
Separate science from science fiction.
Forget futuristic visions of a world run by self-replicating "nanobots" that do our every bidding. Real-world companies are for now involved primarily in developing novel materials, such as coatings, that can be used in industrial and consumer products. These types of products are most likely to make it to market in the short run.
"The concept of self-replicating molecular machines is science fiction," said Darrell Brookstein, an investment adviser and author of the book Nanotech Fortunes. "It's not a matter of waiting 30 years to develop them. They're never going to develop."
One area to watch in particular is photoactive plastics, nanoscale material capable of generating an electrical charge from light, said Matthew Nordan, vice president of research at nanotech consulting firm Lux Research. One prototype plastic, developed by Massachusetts startup Konarka, is under evaluation by Nokia (NOK) to recharge handsets, Nordan said.
Look to the long term.
Research-intensive fields such as nano-electronics will take years or even decades to evolve into commercial products and profits.
Tom Theis, director of physical sciences at IBM research, estimates that the typical time lag from lab discovery to commercial deployment is 10 to 15 years for hardware. By way of example, he cites the discovery in the late 1980s of a phenomenon called the Giant Magnetoresistive Effect, or GMR, in which scientists saw large resistance changes in materials comprised of thin layers of various metallic elements. It took 10 years for IBM to incorporate GMR into hard drives for desktop computers.
Today, IBM and other research labs are focusing on two technologies -- magnetic RAM chips and phase-change memory -- that Theis expects will dramatically improve the memory capacity of digital devices. But don't expect them on store shelves any time soon.
"You can't expect any of these devices to revolutionize the world for another 10 to 15 years," Thies said.
Buy at the bottom -- and we're probably not there yet.
If you're looking for a good deal on a hot nanotechnology stock, don't feel pressured to rush in now.
Brookstein believes the market for shares of companies specializing in small technology hit a cyclical peak in November. He doesn't expect the sector to hit bottom and begin a recovery until mid-2006 at the earliest, based on a technical analysis of stock price fluctuations in the sector.
It'll also take a while, Brookstein said, for another crop of promising nanotech startups to prepare offerings for the public market.
"No pun intended, but nanotech in the public markets is a very, very tiny segment," Brookstein said, adding that venture capital investments in nano startups have declined since 2002.
Beware of marketing labels: If a company has "nano" in its name, Nordan cautions, that doesn't necessarily mean it's on the cutting edge of nanotechnology.
Dig into the technology behind potential investments before you place a bet.
Pick your R&D segment carefully: Companies pursuing nanotechnology can broadly be broken into three distinct divisions, each in a different part of the value chain, each with its own distinct time line for commercialization.
The first rung is comprised of companies developing nanomaterials, the raw materials for finished products. This rung attracts the largest volume of startups making it perhaps the riskiest place for investors.
Nordan says he sees more promise in companies developing so-called intermediate products such as memory chips and microprocessors in the electronics sector and fabrics and coatings for consumer and industrial products.
The third rung -- finished products that incorporate nano-enabled chips, fabrics and coatings -- is an area for the most-patient investors. From 2010 onwards, Lux expects nanotechnology will become commonplace in manufactured goods.
Opportunities to invest.
Investors looking for exposure to a smattering of nano startups can buy shares in Harris & Harris Group (TINY), a publicly traded venture capital fund that specializes in small-scale technology. Other public companies specializing in tiny technologies include semiconductor-packaging developer Tessera Technologies (TSRA), thin-film-technology specialist Nanometrics (NANO) and Veeco Instruments (VECO).
Investment options will likely grow over the next several years as new startups go public and established technology firms spin out nanotechnology divisions as stand-alone, publicly traded companies.
Lux's Nordan advises investors to be particularly wary of companies formed through reverse mergers, a mechanism through which a private company can become public without going through an IPO.
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Disclaimer: Wired News makes no representation as to the investment-worthiness of any companies mentioned in this article. Examples are provided for informational purposes only, not as a recommendation to purchase or sell any particular stock.
