Nano means minute or very small. It is one billionth part of a meter. Nanotechnology is used in engineering and science at the nanoscale to make manufacture devices and materials. At the nanoscale, properties of a substance, such as color, conductivity, strength, and reactivity change. This increases the utilization possibilities of the substance. For example, a carbon nanotube is a carbon tube whose diameter is in nanometers, and weighs 1/6th of steel, but is 100 times stronger than steel.
Nanotechnology possibilities are endless and largely still untapped. It can be used across a wide range of industries including life sciences, textile, food, electronics, energy, and the environment. It has the potential to disrupt several industries. For instance, tech companies use nanotechnology to develop high-performance products at a lower cost. These products will be lighter and smaller, thereby requiring less energy and raw materials for their construction.
Nanotechnology is still a young technology with niche commercial applications, but it nonetheless has immense potential. According to Reportlinker.com, the global nanotechnology market is expected to rise at a CAGR of 12.9% to reach $126.8 billion by 2027.
Three companies — Thermo Fisher Scientific Inc (TMO), Cabot Microelectronics Corporation (CCMP), and Onto Innovation (ONTO) — are at different stages of nanotechnology from material science to manufacturing. So, we think it is worth adding these companies to your watchlist because they will likely be key beneficiaries of the nanotech growth.
Thermo Fisher Scientific Inc (TMO)
Founded in 1956, TMO provides scientific instrumentation, software and services, and reagents and consumables to semiconductor manufacturers, laboratories, healthcare, and life science sectors. The company has a market cap of $203 billion. Its stock price surged 43.7% last year because its Life Sciences Solutions segment provided products and services to fight the COVID-19 pandemic. The global economy has slumped since the outbreak of the pandemic and investors continue to rely on tech stocks for some good news in troubled times. This is reflected in TMO stock, which has already surged 10% year-to-date.
TMO’s revenue increased 36% year-over-year in the third quarter as its Life Sciences Solutions revenue more than doubled. The segment’s contribution to TMO’s revenue surged to 40.2% from 27.1% in the third quarter of 2019. Revenues from Specialty Diagnostics and Laboratory Products and Services segments also surged 62.7% and 18.8%, respectively.
Wall Street analysts expect TMO’s revenue to rise by 21.4% and 8.6% in 2020 and 2021, respectively,
Even after the pandemic ends, TMO would likely benefit from the pent-up demand for other life science and diagnostics solutions. Semiconductor manufacturing will likely pick up with the roll out of 5Gt, driving demand for its semiconductor instruments. And investors will continue to be bullish on TMO as nanotechnology is likely to lead to innovations in the future.
How does TMO stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Industry Rank
A for overall POWR Rating
The stock is also ranked #1 stock in the 67-stock Medical – Diagnostics/Research industry.
Cabot Microelectronics Corporation (CCMP)
CCMP was established in 1996 to manufacture and sell performance materials. The company works in the initial stages of nanotechnology. CCMP provides materials to the oil and gas and semiconductor industries that help them boost performance. It has a market cap of $4.6 billion. The stock saw only a 6.3% increase in 2020 because the pandemic hurt the oil and gas sector.
For the year ended September 31, 2020 CCMP’s revenue surged 7.6% year-over-year due to strong growth in wood treatment products and chemical-mechanical polishing (CMP) slurries. However, fourth quarter its revenue declined 1.6% year-over-year due to a 16% decline in performance materials. Demand for pipeline performance products decreased as the pandemic hit oil demand.
As the economy recovers and oil demand surges, CCMP’s performance materials revenue will likely surge . CCMP expects its first-quarter revenue to be either flat or rise in the low single-digits sequentially. Analysts expect the company’s fiscal 2021 revenue to rise 3.6% year-over-year.
We support the outlook with a Buy in the POWR Ratings. It holds “A” in Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade. It is also the #72 ranked stock in the 102-stock Semiconductor & Wireless Chip industry.
Onto Innovation (ONTO)
ONTO was formed in 2019 following the merger of Nanometrics and Rudolph Technologies. ONTO provides process control equipment to semiconductor manufacturers. As Moore’s law comes to an end, shrinking the chip size does not deliver better performance and efficiency. Hence, companies are using advanced packaging, wherein they pack multiple chips on a single chipset to improve performance.
ONTO’s offerings include lithography, step-and-repeat systems, probe card test and analysis systems, and automated defect inspection and metrology systems. ONTO’s stock price surged more than 30% last year, and it now has a market cap of $2.5 billion.
In the third quarter, ONTO’s revenue more than doubled year-over-year, due primarily to a 44% rise in advanced packaging and specialty device markets. These segments, which accounted for 50% of the company’s revenue, saw increased demand for process control and radio frequency modules. For the fourth quarter, the company expects revenue to range from $145 million to $155 million.
Wall Street analysts expect ONTO’s revenue to rise more than 80% in 2020, riding on the rising demand for advanced packaging and specialty devices. The company is rated “Strong Buy” in our POWR Rating system. It also has an “A” for Trade Grade, Peer Grade, and Buy & Hold Grade. In the 26-stock Software – Security industry, it is ranked #9.
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TMO shares were unchanged in after-hours trading Tuesday. Year-to-date, TMO has gained 7.08%, versus a 1.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Puja Tayal
Puja is a seasoned writer working with financial publishing companies like Motley Fool Canada and Market Realist. With over 13 years of experience in the field of fundamental research, she brings a blend of comprehensive, well-researched insights into her articles. More...
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