While taking stock of the current year’s results, it is time to consider how to position for the coming year. 2010 was the year of the ‘Cloud,’ led by companies like Salesforce (CRM) and Vmware (VMW), stocks that both more than doubled over the year. Other hot sectors included rare earth, Chinese internet, online video streaming and burritos! Prices of cloud stocks now look sky high as do Chinese internet offerings; so which sectors and stocks will lead in 2011? Looking over the bulwatechreport.com new technology portfolio, I have selected three areas and investments that should outperform in 2011 and beyond.
Stem Cell therapies offer the promise of curing a multitude of previously untreatable conditions. A series of clinical trials are underway worldwide. While there is some ethical opposition, it is regional and unlikely to arrest progress in a field that is truly global. This technology has the potential to be as big and important as biotechnology/genomics. Companies like Geron (GERN), StemCells (STEM) and ReNeuron have all recently announced new trials for treatments using regenerative stem cell technology. This momentum should continue in 2011 and beyond.
The best way to play a trend in medicine without exposure to a specific treatment’s success or failure is to play the tool suppliers. Thermogenesis (KOOL) is the market leader in tools for the automation of collecting, processing and preserving stem cells other cellular tissues from cord blood and bone marrow. KOOL currently owns 54% of the automated cord bank processing market and has partnerships with companies like General Electric (GE).
Thermogenesis’ current market valuation is just over $35 million, and trades at a revenue multiple of close to 1x. Management is projecting current year profitability and the company has $10 million in cash and no debt. By comparison ‘picks and shovels’ tool suppliers in the biotechnology/genomics area like Illumina (ILMN) and Life (LIFE) sport market valuations between $7 and $9 billion and an average revenue multiple of 4. Also-ran Affymetrix (AFFX) still sports a market valuation over $300 million or 10x larger than Thermogenesis.
Should stem cell therapy live up to its potential there is lots of room for Thermogenesis to grow. If KOOL traded 4x current revenue like its biotech contemporaries, the stock would be close to $10/share, a long way from the current price - under $2.70/share. If the opportunity to provide critical tools to stem cell research is anywhere as large as biotech, and KOOL retains its leadership position it could potentially command a market valuation of over $5 billion or 150x higher than today’s price and equal to approximately $400/share.
This is not a new theme but there are a multitude of initiatives under the alternative energy umbrella that offer investment opportunities. The big winner to this point is solar. While solar will continue to be a winning development for the planet, stocks like First Solar (FSLR) look very expensive and the investment potential of this area may be exhausted.
Looking to 2011 I believe the next big investment opportunity in alternative energy is the electric vehicle.
BYD (BYDDY.PK) is a Chinese company that is the market leader in rechargeable batteries for cell phones and a vehicle manufacturer. The company benefits as the industry’s lowest cost operator as a fully integrated producer of its own battery technology and from CEO Wang Chuanfu’s innovative approaches to product development and manufacture. BYD plans to introduce its all electric car, the E6 in the U.S. in 2011. After a year of setbacks and disappointing stock performance, 2011 may well be the start of a new ascent for the company, electric vehicles and batteries in general.
Li Lu, a hedge-fund manager who advised Berkshire Hathaway Inc. on its investment in BYD had this positive outlook on the company and its CEO at a recent lecture at Columbia, saying
Chuanfu and his team have this fabulous culture….. So he has this ability to adapt in a competitive environment. He has demonstrated that ability again, again and again. The way he does automation is far cheaper than anyone else and more reliable. He continues to surprise me with his ingenuity, to figure out ways to do something better than everyone else. What he is currently doing is very different than what everyone else has done…. This investment is not easy to understand because it is changing so fast, at such a large scale. An almost unheard of speed. Their manufacturing capabilities will double soon. This year they will hire 10,000 college graduates, 8 or 9 thousand engineers. The scale is almost unparalleled. So this is why the study of history, of all the great corporations will give you a good insight in seeing what will happen with BYD.
The company’s batteries are also positioned for other energy storage uses related to the grid and renewable energy. BYD is a relatively large company with roughly a $13 billion US market valuation but shares are down over 50% since the recent highs in April 2010 following disappointing results and some expansion hiccups, making current valuation far more attractive. We aren’t the only investors taking an interest as Warren Buffet saw fit to take a 10% stake in the company in 2008.
Looking forward BYD is introducing new electric vehicles at lower price points than competitors and is planning to enter U.S. markets. The city of Los Angeles has stated intentions to purchase thousands of electric buses from BYD over the next decade, necessitating the company to establish a manufacturing presence in the United States. BYD also has electric vehicle development plans with Daimler and Volkswagen. Given the company’s history as a leader in rechargeable battery technology, strong management, and deep pocketed investors, BYD is positioned to be a winner in the next big investment theme in alternative energy – the electric vehicle.
Embedded Micro Projection Display Technology
Display technology has experienced drastic changes over the past decade, transitioning from traditional CRT technologies to flat panel displays using various technologies including Plasma and LCD. Panel display continues to evolve with new introductions enabled by OLED (Organic Light Emitting Diode), and soon to be AMOLED (Active Matrix) flexible screen technology. I believe the next advance in the display technology revolution is miniature projectors, sometimes referred to as Pico. Pico technology enables embedded micro projection which promises a whole new era of display, making media truly portable and further causing a disruptive shift in vehicle and other Heads up Display (HUD) applications.
There are currently a variety of standalone micro projectors on the market powered by different technologies and offering displays of varying quality. These include Liquid Crystal on Silicon (LCoS), LED and Laser Beam Steering (LBS) mirror based MEMS devices. The real opportunity comes with the introduction of modules small enough to be embedded in devices like smart phones and still powerful enough to offer very high quality brightness and contrast of image. This advance will bring a revolution in truly portable projection for media viewing from television and internet to gaming. When applied to Heads up Display (HUD) this technology promises a new era in vehicle display making driving safer and offering users dramatically more information and flexibility of presentation, rendering traditional speed dials and instruments downright Neanderthal.
The time for embedded micro projectors may be finally coming in 2012. Microvision (MVIS) a small Redmond, Washington-based technology company appears to have the early lead with its LBS PicoP® display engine. A delay caused by a supply shortage of necessary green lasers should be resolved by the later part of 2011. While the company’s long history of unprofitability is disconcerting, its time could finally be here as management is projecting profitability within 6 months of mass scale introduction of its PicoP® embedded module in a variety of portable devices in 2012.
The main competition comes from much larger rival Texas Instruments’ (TXN) DLP® technology, but Microvision technology appears to compare favorably, especially in size and requires no focus. The company has agreements to supply large companies like Motorola that have been delayed but should bear fruit when the laser supply shortage resolves. In a recent transaction with Motorola, Microvision acquired patents extending the company's IP portfolio in Pico projection and display technology and also made Motorola (MOT) a shareholder in Microvision. Microvision has always had a strong patent position, ranking #1 of all U.S. electronic companies in a 2010 report by IEEE that ranked overall ‘patent power’, ahead of Apple and Xerox.
With a current market valuation of $150 million and a clean balance sheet the company represents a compelling, if speculative investment for a balanced technology portfolio. By comparison OmniVision (OVTI), a company offering embedded image sensors for camera applications in mobile devices, sports a market valuation 10x higher on revenues of around $1 billion and I view the display opportunity as larger.
The Heads up Display (HUD) market represents another and potentially larger and more disruptive opportunity for this technology and Microvision. The company has established partnerships with tier 1 automotive companies to develop the next generation of HUD displays for vehicles and recently inked a deal with Pioneer to collaborate to commercialize HUD using its PicoP® technology. The HUD market is not limited to the auto market as there are similar applications in aviation and marine vessels. The company is also applying its projection technologies to Head Worn displays for military and other mobile device eyewear.
Technology is always changing and offering investors new opportunities for growth. That is why it is the best sector for investment and why the Nasdaq 100, a revolving index of the largest technology companies, has outperformed the S&P 500 2 to 1 over the last 35 years. With every new year it is important to reflect and take stock of performance and then take what you have learned and forge ahead. Technology represents better investment opportunities now than ever in our history. Technology feeds on itself. Each new advance and product introduction facilitates a faster introduction of the next life-altering development. As an example, the creation of software able to simulate and model has accelerated the product development cycle in all industries from Biotechnology to Microcircuits. The best is yet to come and these investment themes are currently three of the most compelling that I follow.
Disclosure: I am long BYDDY.PK, KOOL, MVIS, GERN.