A Closer Look at 3 Lux Nanotech Companies

In a recent article, we examined the constituents of the Lux Nanotech Index in an attempt to determine why the overall index performed so poorly, and more importantly try to determine if any of the “nanotech” companies in the index merit a second look today. Our last article in this series looked at two of the five companies that managed to beat the returns of the NASDAQ over the past 10 years; Aixtron and Gentherm. While both of these companies managed to create superior value for shareholders, neither appeared to be compelling investments for today’s “nanotechnology investors“. Let’s take a look at the other three members of the Lux Nanotech Index that managed to beat the returns of the NASDAQ over the past ten years.

5-Year Return Market Cap (millions) Business Focus
Harris +202% 7350 Communications and IT
Rockwood +291% 5780 Specialty chemicals
Biodelivery Sciences International +648% 640 Drug delivery

Harris (NYSE:HRS) is an international communications and information technology (IT) company serving government and commercial markets. The Company operates in three segments: RF Communications segment, Integrated Network Solutions segment and Government Communications Systems. While they may have been looking at using nanotechnology in some fashion in the past, today nothing about this company seems to lend itself to utilizing nanotechnology.

Rockwood Holdings (NYSE:ROC),is a developer, manufacturer, and marketer of specialty chemicals and advanced materials used for industrial and commercial purposes. The company has recently exited their interests in titanium dioxide pigments, clay-based additives, and advanced ceramics to focus solely on two high-growth, high-margin segments: surface treatments and lithium compounds and chemicals. Abermale has recently proposed to acquire Rockwood, a matter of which will be voted on by shareholders on November 14th, 2014. Should the acquisition go through, the resulting entity will have a market cap of almost $11 billion dollars and hold market leading positions in lithium, bromine, polyolefin catalysts, and surface treatments. While Abermale did form a “nanotechnology center” in 2004, neither of these companies seem to have a stated goal to utilize nanotechnology as a competitive differentiator in the production of specialty chemicals.

Biodelivery Sciences International (NASDAQ:BDSI) has a pipeline of pharmaceutical products that utilize their BioErodible MucoAdhesive (BEMA) drug delivery technology. Essentially, the technology allows drug delivery by applying a thin film to the inner lining of the patient’s cheek. This method of delivery is desirable when rapid delivery of a drug is important, oral dosing is not optimal, or when intravenous line or injections are unavailable or not practical. BDSI has four drugs in their pipeline for pain management and addiction. The Company has been engaged in litigation with Monosol over claims of patent infringement, however, BDSI continues to come out ahead in rulings by the USPTO. The Company has $78 million in cash on hand and realized $34.5 million in revenues for the first 6 months of this year compared with $4.3 million for the same period in the year prior. While the company makes no mention of whether or not their drug delivery technology is enabled by “nanotechnology”, it does seem their technology is unique, commercially proven, and has a strong intellectual property moat. Given the strong recent share price performance, investors may want to give BDSI a closer look.

This concludes our evaluation of all “nanotechnology companies” in the now-defunct Lux Nanotech Index. Are any of these companies compelling for “nanotechnology investors” today? Excluding any of the “large caps”, and excluding all companies that did not manage to exceed the returns of NASDAQ over the past ten years, the answer seems to be probably not.

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