A trio of experts looks at nanotech

Posted Apr 10th 2007 8:30AM by Steven Halpern

A trio of leading analysts is finding opportunity in the emerging nanotechnology sector.

Venture capitalist, scientist and newsletter advisor, Josh Wolfe – in The Forbes/Wolfe Nanotech Report – looks at two favorite buys in the sector. In this case, he is selecting stocks that make the high-tech tools needed by researchers involved in nanotech.

He explains, "Veeco Instruments Inc. (NASDAQ: VECO) and FEI Company (NASDAQ: FEIC) both make the specialized 'tools' that are needed by scientists, academics and industry in nanotech research and development."

Veeco, he notes, makes atomic force microscopes while FEI is focused on ion and electron beam microscopes. Both stocks are long-standing members of his model nanotech portfolio.

He says, "Veeco stock has been flat recently, with declining quarterly orders stealing the thunder from robust Q4 results. Revenues increased 9.1% YoY to $123.1 million and profits more than doubled to $7.6 million."

He continues, "CEO Ed Braun predicted strong demand for the company's MOCVD systems with accelerating demand for HB-LED manufacturing stoked by the penetration of flat-panel displays into the mass market."

As for FEI Company, he adds, the stock has risen to more than $1 billion in market cap, on the back of record quarterly bookings and earnings. Quarterly revenues of $140.3 million were up 41% over the prior year, while bookings of $171.7 million were 50% higher than Q4 2005. Revenue backlog at the end of December was $305.9 million, with 90% expected to ship by the end of 2007."

He also notes that FEI recently got an $11.5 million order from the Technical University of Denmark, which is the largest single order ever received by the company.

Meanwhile, Fox TV regular Charles Payne also looks toward nanotech for a recent buy in his newsletter, Wall Street Commentaries. He explains, "NVE Corp. (NASDAQ: NVEC) is a leader in the practical commercialization of spintronics, a nanotechnology that many experts believe represents the next generation of microelectronics."

He notes that the company licenses its MRAM intellectual property and sells spintronic products, including sensors and couplers, which he notes could eventually "revolutionize data sensing and transmission."

Payne cautions, "This is a high-risk idea. The stock isn't cheap in a relative sense; the shares are changing hands at a price to earnings ratio of 32.0 versus the industry average of 20.0, and a price to sales ratio of 7.8 against the industry average of 1.8."

Despite its above-average valuation, he notes, "This is one of the better 'nano' plays out there. And with sales up 48% and gross margins expanding to 62% in the most recent quarter, there is more than hype behind this name."

Technically, he adds, a move through $30 should lift the shares to $33. From there, he notes, the stock would have potential to "catapult to $36." He adds that "nervous investors" should consider the high risk and volatility of the stock.

For those who don't want the risk inherent in selecting a single stock within the sector, Keith Fitz-Gerald -- editor of The Skeptical Investor -- says, "If you want to cast a wide net over the nanotech space, you should pick up a few shares of the Lux Nanotech Fund (ASE: PXN)."

This exchange-traded fund, he notes, comes from from PowerShares and attempts to mirror an underlying index called the Lux Nanotech Index, which in turn holds nanotech stocks -- both public and private.

He says, "With an October 26, 2005, inception date, it's still relatively young but they're doing all the right things, including keeping expenses at a low .73%. Turnover too is a low 6% versus an industry average of 182%."

He rates the fund a long-term buy under $20. He concludes, "Tuck it away for a potential long-term double."

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.

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