The scientific community has been buzzing about nanotechnology ever since the discovery of the carbon nanotube in 1991, but last week was a particularly "big" week for nanotechnology: Nanomix, a private company based in California, launched an industrial sensor, the first commercial product incorporating carbon nanotubes as an integral part of a working device. Separately, Motorola
These are truly the next steps in a field of scientific research that stands to revolutionize health care, defense, energy, agriculture, and our everyday lives, and we want to get in on the ground floor (when it's ready to stand on).
Nanotech scientists manipulate individual atoms and molecules to create or enhance materials, devices, and systems. In addition to the aforementioned display screen, tiny nanotech innovations will have a big impact on our future, so it's perfectly reasonable for the scientific community to be vocal about its excitement. With more and more stunning laboratory breakthroughs being made every day, that buzz is justified.
But what of investors? Should our portfolios take notice of this emerging, Rule Breaking -- but as yet commercially unproven -- technology? Companies at the forefront of nanotechnology promise to be the commercial giants of the 21st century. Mastering the unique chemical and physical properties to potentially create products that promise to deliver disruptive technologies is what the nascent science is all about. Tomorrow's commercial giants can reward the patient investors who believed in them early on -- just ask the wise and wealthy early investors in IBM
Seeing down the road
And that's a key point, because we are still very much in the development stage for many nanotech breakthroughs. Turning important lab discoveries into commercially available disruptive technologies is a complicated and arduous process, which partly explains why the increasing excitement from the investing community is not yet justified. The commercial results of this science are less than stunning so far and have provided somewhat less-than-stunning investment returns. The important words here, however, are "so far."
We remain convinced that in the long term, nanotechnology will create new markets, produce substantial savings in existing industries, and provide returns for investors that will likely surpass all previous disruptive technologies. Merrill Lynch
A little reality
There is little commercial evidence to date to support companies gaining 50% in a day based solely upon being awarded a nano patent, as happened recently with Nanogen
So the challenge, then, is to separate the nanotech winners from the nanotech wannabes. At Rule Breakers, we obsess about finding the companies with sustainable advantages that already demonstrate good science. We navigate the nanotech universe looking for businesses that produce actual revenues from actual sales of actual products (we're a bit funny that way). Ultimately, we want companies that demonstrate smart financial backing with powerful commercial partners that are prepared to pay money -- big money, in some cases -- to get involved in the nano "upstart" trend.
Today's formula, tomorrow's success
There have been only a few instances of nano companies successfully taking the science and producing sustainable commercial developments. The number of publicly traded nano companies that have had a sustainable share price rise from commercial breakthroughs? Just one: American Pharmaceutical Partners
Established industrial giants other than Motorola have joined the fray of nanotechnology. Samsung has nanosilver additives in its washing machines. EastmanKodak
Rule Breaking investing
The genuine and sustainable Rule Breakers will mainly emerge from the hundreds of currently private companies that focus on research and will take their nano expertise public only when they have a product for the commercial markets. That's why we don't get too excited when we see a company trading at $2 suddenly jump to $3 and $4 -- taking its market cap to $100 million -- on a rumor, without the support of a genuine commercial product. Before we recommend anything, we want to see tangible proof that our investment (and its product) has legs.
Will we miss the first nanotech double? Maybe. But our aim is to find companies that will sustain growth to obtain a $1 billion market cap and beyond. If we accurately spot such companies, it will not matter that we missed a stock that doubled from a $50 million cap to $100 million solely on promise. We'll be more than compensated when our nanotech investment soars from $100 million to $1 billion based on actual product development and sales.
Nanotechnology is ready to make a difference in our lives. Everyday products such as cell phones, washing machines, or even pharmaceuticals will be enhanced and improved. But buyer beware: There is a crucial difference between finding short-term share price pops based solely on buzz and finding long-term Rule Breakers built on good management, first-mover status, and sustainable advantages. We've already recommended one nano company to our subscribers, the VC firm Harris & Harris
Motley Fool Rule Breakers nanotechnology analysts Carl Wherrett and John Yelovich both own shares of Harris & Harris. They do not own shares in any other companies mentioned in this article. The Motley Fool has a disclosure policy.
