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Are You Ready for Nanotechnology Stocks? (Part 1)

29 October 2007 - Features - Editor

Careful before you reply in the negative! Most of the world’s top corporations that depend on technologies have begun putting their stocks into nanotechnology, though they tend to do so out of the spot light for reasons of competitive intelligence. Miniaturization is so integral to electronics that a progression towards nanotechnology seems only logical, but it is in health care that some of the most revolutionary applications of molecular and atomic therapies at the cellular level are beginning to take place. It is now conceivable that all significant drugs in the future will involve nanotechnology.

The foregoing indicates that the question which forms the heading for this piece should be considered in the light of stocks of companies which specialize in nanotechnology solutions. What if a company, probably started by a group of scientists, has a platform nanotechnology, but no marketing or distribution infrastructure, and weak financial planning and control systems? The choice of investing in stocks are clear if one has reason to believe that such a company is about to be acquired by a major, but is the know-how durable and useful? Obsolescence in electronics is always a lurking threat, and only very few pharmaceutical product candidates make it past trials and regulators to revenue lines.

Technological Appreciation for Picking the Right Nanotechnology Stocks

New branches of knowledge typically take decades, and even the better part of a century, to mature. There are long gaps between early discoveries and profitable business ventures. Picking stocks from a new sector such as nanotechnology is always hazardous, because the number of failures will be a high, though they will always be a few islands of excellent financial performance. Protection of capital should have precedence over dreams of profits and growth in such circumstances. Fortunately, that does not mean investors have to stay away from nanotechnology altogether. Self-sufficiency in cash generation is the pot of gold at the end of the nanotechnology rainbow which deserves support by buying and holding stocks.

Large corporations that dabble in nanotechnology may hide huge drains on cash because of the sheer sizes and diversities of their operations. Investors may still do well by purchasing such stocks, but there is no way of knowing whether nanotechnology delivers value in such cases, or simply drains it away. Pure nanotechnology stocks are worth buying when they secure long term funding, or better still, when they secure sizeable industrial contracts. Tight budgeting and effective cost management are other hallmarks that investors should value when picking stocks from this sector.

Brick and Mortar Principles for Securing Nanotechnology Stocks

It is ironical but true that the same business management principles which govern successful trading in stocks of mature sectors also apply to the sunshine ones. Miracle therapies to save lives and amazing new product features are of no use as long as a corporation keeps asking for new blocks of funds. Investor support should be conditional on the ability to generate adequate after-tax profits for reinvestment in the business. Investment in equity by corporate customers is an excellent sign, whether this is taken as a sign of possibly future acquisition, or because a corporation takes on a nanotechnology company as a strategic supplier. The finance and human resources management functions of nanotechnology companies should also be fully equipped before anyone can become seriously interested in their stocks.

Are You Ready for Nanotechnology Stocks? (Part 2)

 


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