Innovation drives the advancement of society. Where would we be were it not for the ideas, discoveries, and inventions that have helped facilitate the very function of modern day life? In the same sense, the markets have always existed for the purpose of funding and developing companies that harness the spirit of innovation. For this reason patient investors can often partake in the success of bringing about new technologies into reality.
As an active investor in development companies, I always strive to find some of the most innovative companies in their respective fields. Disruptive technologies serve as potential investments if they are capable of providing a unique comparable advantage, which can help a company corner a niche market. The following four stocks are some of these names:
- Pacific Biosciences of California, Inc. (PACB) - PacBio RS
With its high-flying competitors being Life Technologies Corp. (LIFE) and Illumina Inc. (ILMN), one comparable look at the stocks of these three companies and an investor might be quick to dismiss Pacific Biosciences in this market space. Yet as I described in my article found here, it would be errant not to look down the road when it comes to what the Pacific Biosciences is able to deliver. The PacBio RS is able to provide molecule sequencing and analytics in real time, a superior advantage over what is currently possible. The technology is also capable of lowering the time per run and currently generates the longest read lengths out on the market.
Though complex to understand for most investors, in short this essentially means that the company's primary product has a significant advantage when it comes to analyzing complex sequencing challenges. When the company originally came out of the gate with a third-generation sequencing technology, the PacBio RS was initially struck with numerous bugs and kinks that initially hurt the company's sales. Yet over the course of 2012, the PacBio RS has worked out these problems and is rapidly proving to be a superior system that has yet to be realized by the market.
- Intermolecular, Inc. (IMI) - High Productivity Combinatorial Platform
The average investor may see a boring technology when it comes to the HPC platform, but for businesses it's a step into a time machine. Intermolecular specializes in increasing research and development productivity, particularly for high-tech industries. Utilizing the patented HPC platform, Intermolecular allows for experiments to be performed at speeds 10 to 100 times faster than traditional methods. This is because the platform combines several processes and can perform up to 192 experiments onto a single substrate.
As described in my article found here, why this matters is because competition is becoming ever more intense in the modern era. Development time can make or break a company. Intermolecular has already partnered with some of the largest companies including IBM and First Solar (FSLR). What makes Intermolecular a long-term investment is that the company ultimately earns royalties on the intellectual property it develops for these established leaders. With partners paying for the research, and the company gaining off of the results, the earnings are likely to snowball as IMI optimizes this business concept of a "win-win" scenario.
- Solazyme (SZYM) - Sugars-To-Tailored-Oils Platform
The world is heavily reliant on all kinds of oils, and yet there are very few ways in which we derive them. We drill for existing reservoirs, squeeze it out of crops, and slaughter animals to gain it, and yet in each of these instances humanity has largely been dependent on what is given.Solazyme's heterotrophic fermentation process utilizes engineered microorganisms that can be customized to produce a wide spectrum of oils with specific uses. The company can replicate existing oil profiles, but has increasingly been finding ever higher value in developing tailored oils that simply do not exist in nature. Because it's able to control saturation, carbon chain length, and functional groups, the company can create superior oils that industry knows it can use but has never been able to source.
Though often mistaken as a mere biofuel play, Solazyme's comparative advantage actually lies entirely in its ability rapidly evolve the oils of today. It does so in ways that existing genetically engineered oilseed producers such as Monsanto (MON), DuPont (DD), or Syngenta (SYT) are simply unable to compare in regards to degree, scope or development time. Currently constructing its first large scale facilities for commercial production with partners, Solazyme has yet to gain the market's support despite significant top-line revenue growth lying in wait as the next year comes around.
- Google (GOOG) - Google Glass
Perhaps it may be premature to acknowledge Google's latest pet project as an innovation that can bring about disruptive change. After all, the mainstream consumer has quite often preferred Apple's (AAPL) fashionable products over the tech-related functionality Google has often come to represent. Yet Google Glass could possibly mark an innovative entry into a new market space altogether.
As GigaOM's Katie Fehrenbacher notes in her article found here, Google Glass may break the world into the Internet of Things - the ability to manipulate objects in the interconnected real world. For a company so dedicated to expanding connectivity, such an evolution from mere data to functionality in the real world could prove to make a meaningful impact on society. It may be seem foolish to believe it can all be accomplished through Google Glass (and it likely is), but don't count Google out just yet when it comes to opening up the door for the next wave of innovation.
It goes without saying that companies often trade on much more than mere concepts. From a practical standpoint, each of these companies carry varying levels of risk and reward that may or may not be realized by the market at a given time. The following are a few quick thoughts in regards to the present investment potential of each:
PACB - The company remains very far away from profitability with no upcoming catalysts to change that in the foreseeable future. However, the company is beginning to ramp up sales. With its current progress and the popularity of the sector Pacific Biosciences could even stand to be a possible buyout candidate at these levels.
IMI - With an average volume of about 60,000 shares, Intermolecular is a company that has yet to garner much attention. Yet the company now carries a $432 million market cap and a price-to-book ratio of 5.11. The company is not undervalued, but with a clear ramp towards increasing earnings potential it appears to be a stable investment to consider. The ability to profit on the efforts of partners remains an enticing business model.
SZYM - With such a large increase to the top line expected to occur within the next two years, it remains a mystery why the market has turned the blind eye to Solazyme. The company's large manufacturing facilities are coming online in late 2013 and early 2014. These are likely to generate revenues in the several $100s millions range compared to the $10s millions range now being achieved from research and limited product revenues alone. The company eventually expects double-digit margins as well and CFO Tyler Painter was even quoted as expecting a relative total operating margin of 25% for the company in the interview found here.
GOOG - With its $268 billion market capitalization, it's near impossible to believe that a single product can move the company's stock in a meaningful fashion. The company remains in very good financial shape and while it may be able to benefit from a possible wave of innovation found in disruptive technology, Google Glass would simply not be the sole reason one buys this company alone.