Nanotechnology is as compelling as it sounds: a field of research dedicated to building devices and materials at the molecular and atomic levels. At that dimension, materials behave differently. And in practical terms, nanotechnology could help increase manufacturing production while cutting costs. The stock market is keen to find the next biggest technology boom, with investors looking for nanotech stocks to buy.
That group includes many names in the semiconductor and industrial sectors. Companies that spent years researching developing nanotechnology-based solutions have huge return potential for investors. Some are familiar names, while others less so.
Here are seven companies that investors should look at today:
- Thermo Fisher Scientific (NYSE:TMO)
- Intel (NASDAQ:INTC)
- Arrowhead Pharmaceuticals (NASDAQ:ARWR)
- Veeco Instruments (NASDAQ:VECO)
- Onto Innovation (NYSE:ONTO)
- International Business Machines (NYSE:IBM)
- DuPont de Nemours (NYSE:DD)
Thermo Fisher Scientific (TMO)
Thermo Fisher Scientific is a diagnostics and research firm with deep interests in material sciences. Its work in transmission electron microscopy and energy-dispersive X-ray spectroscopy will further its understanding of the textile industry. The company said that its nanotechnology studies will lead to adaptable clothing that repels stains, odors, and water.
Smartphones use transistors that are getting smaller and faster. And in medicine, nanoparticles will deliver next-generation drugs and vaccines.
In the third quarter, TMO advanced its cryo-EM for structural biology applications in its electron microscope business. Its new POROS Oligo resin is used to purify and isolate mRNA. Already, the development of mRNA-based vaccines and therapies reached a milestone. The distribution of novel coronavirus vaccines will increase the demand for mRNA production.
For 2020, TMO forecast revenue growing by 20% to around $30.5 billion. Its full-year adjusted earnings per share will increase by 48% to $18.27.
The chart above shows TMO stock’s strong quality and growth score. Its nanotech developments will only lift the company’s growth prospects next year.
Falling behind in the chip processors race for personal computers, Intel is not yet out of the race. The company’s chief technology officer, Mike Mayberry, discussed its nanotech ambitions at the international VLSI conference.
Intel will use nanowire/nanoribbon transitions in volume in five years. That timeline will feel like an eternity, especially after the company announced delays in its next-generation chips. Still, these are considered the future of computing. By going beyond FinFET to Gate-All-Around structures, it increases density and high-performance logic.
Investors should note that Intel did not give a clear timeline for this implementation. Besides, its new 7-nanometer process node is still behind schedule. This delay will give its competitors, including Advanced Micro Devices (NASDAQ:AMD) and Taiwan Semiconductor Manufacturing (NYSE:TSM) a sizeable lead.
As the table above shows, INTC stock is high on quality because of its strong gross margins. That is sustainable, as long as the company catches up in its product refresh.
Arrowhead Pharmaceuticals (ARWR)
Arrowhead Pharmaceuticals is focused on discoveries that produced integrated systems of nanotech devices. The Global Nanobiotechnology Industry report said the market has an estimated size of $18.4 billion this year. It cited this company as one of the competitors in this market.
In its core business, the company spent around a decade in bringing RNAi outside the liver. It is building a library of linker chemistry which is used to optimize delivery. By designing potent RNAi triggers, Arrowhead has a TRiM Platform that can treat more patients with its drug candidates. President and CEO Christopher Anzalone said, “RNAi doesn’t care what gene has been silenced once we validate our ability to reduce expression of a given gene in a given cell type, we have confidence that we can replicate that in other gene targets.“
So, if this approach bears fruit, the value of its drug pipeline increases as they get approved, fueling ARWR stock.
Veeco Instruments (VECO)
Veeco Instruments is a semiconductor equipment and materials firm specializing in manufacturing 3D transistors and 3D memory. The company decreased its development risks by seeking partners to develop 3nm and 5nm technology node research.
In the third quarter, Veeco’s data storage unit lifted its revenue to $122 million and non-GAAPS EPS to 22 cents. Although nanotech is not a driver to its growth, VECO stock investors should not get deterred. The company won a deal with Aledia to supply Veeco’s Propel 300 millimeter MOCVD (metal-organic chemical vapor deposition ) system. MOCVD is a technology used to deposit thin layers of atoms onto a semiconductor wafer. Wafers are made of sapphire or silicon. The customer will use this to manufacture 3D nanowire Micro LED displays.
In the five-year discounted cash flow growth exit model below, the fair value is $21.90:
|Discount Rate||11.0% – 10.0%||10.50%|
|Perpetuity Growth Rate||3.5% – 4.5%||4.00%|
|Fair Value||$19.13 – $25.68||$21.90|
Readers may change the discount or growth rate to re-calculate the stock’s price target.
CEO Bill Miller said that its early state micro LED applications will drive its growth in 2022 and beyond. Continued news on this development will likely give VECO stock another lift in the next year.
Onto Innovation (ONTO)
Last year, Onto Innovation completed a merger that combined Rudolph Technology with Nanometrics. The deal sought to reduce costs and increase both device performance and product cycle times.
Onto develops process controls. This includes 3D metrology on chips from the nanometer-scale transistors to micro-level die-interconnects. In the third quarter, the company posted revenue of $126.5 million up 101% from last year. It earned 40 cents a share (non-GAAP). In the quarter, customers started using early versions of its Atlas V for the development of node generation as small as 2 nanometers.
In Q4, CEO Michael Plisinski expects growth to accelerate. Demand for the inspection, specialty device, and advanced packaging will remain strong. Its metrology business will also enjoy a rebound in demand.
Based on three analysts, the average price target for ONTO stock is ~$50.00 (per Tipranks).
International Business Machines (IBM)
IBM has at least a two-decade history in nanotechnology research. Its IBM Research division worked in partnership with Singapore’s Institute of Bioengineering and Nanotechnology. The two firms developed a synthetic polymer that may help increase the effectiveness of existing antibiotics.
IBM stock does reflect the value of the Research division. Despite being a major player in the fields of polymer and materials chemistry, investors are more interested in its developments in artificial intelligence and DevOps. In the near-term, IBM’s decision to spin-off its managed infrastructure services business will unlock the stock price discount.
The company is also pivoting to the hybrid cloud market. As it does so, its pace of innovation will increase. And as it creates a competitive advantage, differentiating itself from its peers, investors will buy the stock. So, for now, markets will not notice IBM’s contributions to the nanotech segment.
DuPont de Nemours (DD)
Trading at close to 52-week highs, basic materials firm DuPont de Nemours may have huge returns ahead. Markets may associate the company with the progress in nanomaterials development.
DuPont’s Nutrition and Biosciences division, which it is spinning off through an exchange offer, will interest nanotech investors. Silvadur is a nanoparticle-based silver product. It has silver metal particles that do not easily dissolve in water. This gives it a less uniform finish.
These days, the pandemic is raising awareness of warding away viruses and bacteria. So, demand for Silvadur’s antimicrobial fabric surfaces property may increase. Not only is DD stock a potential winning name for investors but so is the spinoff.
|Price / Earnings||–||–||38.5|
|Price / Sales||2.6||1.5||2.7|
Data from Stock Rover
In the table above, the value score suggests that DD stock is trading above fair value. Investors may want to consider holding the Nutrition and Biosciences spinoff instead.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.