In addition to sharing his investment advice in the Forbes/Wolfe Nanotech Report, Josh Wolfe is the co-founder of Lux Capital, a nanotech venture capital firm. Some readers may recognize this name from its role in the Powershares Lux Nanotech Fund (ASE: PXN).
According to Wolfe, Harris & Harris -- a New York City-based firm with a market cap of $275.6 million -- is invested in a diversified range of early-stage nanotech companies. He notes that its portfolio is comprised of 27 private companies.
There is high risk. He cautions, "TINY's shares trade mostly on investor hype over their potential for growth. In fact, investors are currently getting $5.42 worth of value for a share price of $13.25 - not a great trade if you're measuring performance by the usual metrics of sales and profits."
But, he adds, conventional valuation metrics do not apply well to business development companies like Harris & Harris. So what, he asks, justifies TINY's premium valuation?
Wolfe says, "I believe there is plenty to like about Harris & Harris. For one, the firm adheres to some basic rules of sound investing, such as keeping a diversified portfolio."
In addition, he adds, TINY's invested assets are all in private companies so, as he observes, its portfolio can't be replicated. Importantly, the company's future and valuation will be impacted by what he calls the IPO factor.
Wolfe explains, "Ever since Sarbanes-Oxley, the IPO market has been hesitant. Still, eventually investors' appetites for higher risk, high return stocks will make a comeback."
In the meantime, he notes, "Time is on Harris & Harris' side. With $60 million in cash or cash equivalents, no debt and very little overhead, the company can afford to sit back and let its assets mature."
Today, he notes the nearest thing to "finished goods on TINY's shelf" are Neophotonics (a maker of optical components), Molecular Imprints and Nanosys. For full disclosure: Josh Wolfe's venture firm Lux Capital is an equity investor in both Molecular Imprints and Nanosys.
NeoPhotonics, he notes, makes optical components for communications networks. Nanosys, he explains, began as a nanomaterials supplier, and over the past few years it has built collaborative business partnerships with companies like Sharp, Intel, and Micron Technology.
Molecular Imprints, he adds, has one of the largest patent portfolios in three-dimensional imprint lithography. He says, "In addition, it has received additional backing from Motorola, KLA Tencor and Japan's Dai Nippon Printing Co. It won't be long before Molecular Imprints revenues start attracting the attention of investment bankers."
The advisor states, "If the IPO market does indeed warm up in the next 12 months, speculators who buy TINY at even its current share price may be glad they did by this time next year."
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