Canadian technology at work: Hemisphere GPS' Earthworks X200 system is capable of working to accuracies of two centimeters to the bucket teeth of an earth moving machine.
In January, we looked back at the Canadian tech stocks that had an exceptional 2010, capped off by the selection of Glentel as Canadian Tech Stock of the Year and Mark Therier of SXC Health as Canadian Tech Stock exec of the Year. This month we look forward. No we don't have a crystal ball, but we have selected what we believe to be ten of the most compelling Canadian tech stocks at critical inflection points in their journey. Some of the names below are established companies with long histories that may be subtly changing or sharpening their focus. Others are smaller, but have grabbed a foothold and are looking to accelerate their already impressive growth. These companies run the gamut from RNA interference to dehydration technologies, to next-generation GPS. Cantech Letter offers 10 Canadian technology stocks to watch in 2011, arranged by market capitalization, highest to lowest.
1. Celestica (TSX:CLS)
Celestica, an IBM spinoff with a long history in Canada, has in the past been accused of not being a technology stock at all, but a manufacturing concern. Celestica is in a business called electronics manufacturing services (EMS). Outsource manufacturing is, at best, a business with razor thin margins. Add increasing pressure from China and the prospects are doubly perilous. That's why former Ford and GE exec Craig Muhlhauser, who was appointed President and CEO of Celestica in 2006, began looking for ways to modernize and differentiate Celestica's business. The answer? Celestica is now looking to move away from contract manufacturing and into what Muhlhauser calls becoming "supply chain solutions company". The result? Despite flat lining revenue the company's new value added business model returned to profit in their most recently reported quarter, posting earnings of $35.4 million or 15 cents a share in Q3 2010 and guided higher for Q4, expecting earnings of between 20 cents to 26 cents.
2. MOSAID (TSX:MSD)
Shares of Ottawa's MOSAID have been on a tear since mid 2010, moving from $18.30 on June 8th to over $30 at that year's end. Revenue and profit for MOSAID has steadily climbed since the company stopped manufacturing products and began to vigorously defend its stable of intellectual property. MOSAID formed in 1975 and for a time was best known for its key circuit technology, an innovation used in the memory of most of the world's computers. The Company now has an extensive portfolio of significant semiconductor IP among its more than two thousand patents to defend. Click here to read Cantech Letter's interview with MOSAID President and CEO John Lindgren.
3. 5N Plus (TSX:VNP)
If you're going to back a horse, make sure it's a good one. Montreal's 5N Plus, which produces high-performance compounds, has found their Secretariat. A few years ago 5N Plus became a primary material supplier to a small Arizona company called First Solar. And first solar was, indeed, first. It was the only solar manufacturer that had ever brought its manufacturing cost below a dollar per watt, and they did so while being supplied cadmium telluride cells by 5N Plus. The result? First Solar's revenue soared from just over $134 million in 2006 to over $2 billion in 2009. Shares of First Solar rocketed to over $300 in 2008, before settling into the $150 range, where it now resides. 5N Plus has done similarly well, albeit on a much smaller scale. Sales have increased from $10.3 million for the fiscal year ended May 31, 2005 to $69.4 million for the fiscal year ended May 31, 2009. While some investors might be leery of 5N's dependence on First Solar, for the first six months of fiscal 2010 First Solar accounted for 66% of 5N Plus' total sales, 5N management sees it as a stepping stone towards becoming "the supplier of choice for cadmium telluride in the solar industry". To that end, 5N Plus signed a long-term supply agreement with Colorado's Abound Solar in August. The US Department of Energy recently guaranteed a $400 million loan to Abound.
4. Burcon Nutrascience (TSX:BU)
Vancouver's Burcon Nutrascience has not produced revenue, yet the company commands a market cap of nearly $300 million. The reason? Burcon has already become a world leader in a space that seems to have few limits to its size. Burcon owns 127 patents around the extraction and purification of protein from plants. Many believe that as the world population grows traditional sources of protein, such as those derived from animals, will become expensive and unsustainable. The World Bank estimates that global grain production will have to climb by 50 percent and meat production by 85 percent to meet the projected global demand in the next 20 years. In August of last year Burcon received a no-objection letter from the FDA approval for their Puratein and Supertein canola protein isolates, used in food and beverage applications. These products are expected to compete with soy, dairy and egg proteins in the multi-billion dollar global protein ingredient market. Burcon is looking to partner with Archer Daniels Midland, the U.S.-based agriculture giant to commercialize its new Clarisoy protein isolate. Cantech Letter recently talked to Johann Tergesen President and CEO of Burcon about what lies ahead for the company.
5. Electrovaya (TSX:EFL)
Electrovaya, a nominee for Cantech Letter's Canadian Tech Stock of the Year gained 170% in 2010, increasing the company’s market cap from $60 million to $163 million. The reason? Electrovaya was chosen by Chrysler Group as the battery supplier for 140 Ram plug-in hybrid electric vehicles in a demonstration program. EFL has since been busy adding the necessary business development personal to execute this important project including former Chrysler CEO Tom Lasorda, former Chrysler exec Bruce Coventry and former Nortel chief operating officer Clarence Chandran. While the automobile market is probably the most immediately addressable area for Electrovaya to commercialize its battery technology, some think the company is not limited to that sector. "Electrovaya is really just scraping the surface" says Puneet Malhotra, who covers Electrovaya for Dundee Securities. "There is always execution risk, but there are applications for Electrovaya's technology in other areas. In fact they have already begun to demonstrate its viability in electric utilities in demonstration projects." Could Electrovaya's technology power the vaunted Smart Grid? Some think so. Electrovaya recently signed an MOU with a Japanese manufacturer of power distribution equipment named Nippon Kouatsu Electric to use Electrovaya's battery storage systems for both stationary power and smart grid systems applications, initially targeted for the Japanese market.
6. EnWave (TSXV:ENW)
Everywhere you look, food is news. From the government of Algeria increasing wheat supplies after food riots, to food price inflation in India deterring foreign investors to the suicide of a Tunisian fruit seller sparking a revolution. When you can offer tangible improvements to a business that might be the most important on the planet, people take notice. Shares of Vancouver's EnWave, which is developing commercial applications for food dehydration technologies developed at The University of British Columbia, have gone from mere pennies in 2009 to a high of $2 on January 14th of this year. EnWave has yet to show much in the way of revenue, but has nabbed key relationships with giants Nestle and Danisco AS. With a full scale pilot facility to demonstrate its Radiant Energy Vacuum (“REV”) dehydration technologies already up and running, 2011 looks to be an interesting year for EnWave. Recently, Cantech Letter talked to EnWave President and CEO John McNicol about what lies ahead.
7. Tekmira (TSX:TKM)
Celine Dion was at the top of the charts, singing "My Heart Will Go On" from the hit movie "Titanic". Impeachment trials began against Bill Clinton over the Monica Lewinsky scandal. And about four million people were without electricity in Quebec, Ontario and upstate New York after a massive ice storm. 1998 doesn't seem like too long ago, but it's enough for the world to change. In 1998 a scientific discovery, RNA interference, set the world of science in its ear. Since then, scientists have begun to pick apart a process that may help advance therapies in some of our most lethal diseases by leap and bounds.
Burnaby's Tekmira is one of a handful of companies around the world already developing therapies based on RNA interference, and is clearly a leader. So what is RNA interference? Basically it's a process that cells use to turn down, or silence, the activity of specific genes. RNA interference works by blocking the molecular messengers of a a cell, rendering the cell useless. RNAi has already shown great potential with viruses such as HIV and Hepattis C. Tekmira has three internal RNA interference (RNAi) product candidates, one to treat hypercholesterolemia, or elevated cholesterol, one for Ebola and an. anti-tumour drug in the treatment of cancer. This is big stuff; in the Q3 of 2010 Tekmira secured a contract for up to US$140 million from the U.S. Government for the Ebola treatment alone.
Shares of Tekmira took a hit in mid-November when it was announced that partner Roche decided to get out of sRNA amid a restructuring, but Tekmira President and CEO Dr. Mark J. Murray said he didn't expect the news to have a big impact, and highlighted its blue chip roster of partners in Pfizer, Takeda and Bristol-Myers Squibb, as well as the fact that the majority of current revenue is derived from Boston's Alnylam Pharmaceuticals.
Will 2011 be the year Terry Matthew's March Networks joins the list of his recent market successes?
8. March Networks (TSX:MN)
To some Canadian investors lately, finding a good investment may have seemed as easy as looking for Ottawa tech legend Terry Matthews on the board. Shares of Matthew's DragonWave, Bridgewater and CounterPath have all had their time as market darlings. But is there is an exception to every rule and to the aforementioned rule the exception is March Networks. The Ottawa based company, which boasts the first billionaire in the history of Wales as its Board Chairman has been mired in a slump since early 2007, as the losses piled up for the provider of video surveillance products. But out of the gate in fiscal 2011, March has posted consecutive profitable quarters, including a Q2 in which the company posted 32 per cent revenue gain to reach $28.3 million, a record for March Networks. Management says it is seeing a recovery in demand for its surveillance products, particularly in North America.
9. Hemisphere GPS (TSX:HEM)
Calgary's Hemisphere GPS is taking global positioning to the next level. That level is the business world, where Hemisphere products help excavators, hydrographic surveyors, even snow grooming operators become more efficient. But it's in agriculture where the company is seeing the greatest impact. In November, HEM reported the best third quarter in its history. The $13.2-million top line was a 46% increase over the $9.1-million in the third quarter of 2009. Sales of Hemisphere GPS's agriculture segment, which include both land and air based products, were up 54%, the gains were mainly made in South America, Australia and Asia, but HEM says it is starting to see renewed strength in the US agriculture sector, after the U.S. Department of Agriculture increased its projection for net farm income $77.1-billion, which would make it fourth highest year ever in the United States. Hemisphere's agriculture products enable seed and chemicals to be applied more efficiently, and can actually increase crop yields. Cantech Letter recently talked to Hemisphere GPS President and CEO Steven Koles about what 2011 might hold for the innovative company.
10. CriticalControl Solutions (TSX:CCZ)
There's not a whole lot of sizzle to CriticalControl Solutions business. Fortunately, the Calgary based company has enough steak to go around. CriticalControl supplies data management and enterprise content management tools to half the provincial ministries of the Alberta government, but the bulk of its revenue comes from sales to oil and gas companies. Despite being consistently profitable, CriticalControl consistently falls under the radar. Byron Capital analyst Al Nagaraj, who recently initiated coverage of the company with a Buy rating and a target of $.95 cents says "investors appear to overlook the company's competitive strengths". Nagaraj believes the company's technology and processes are unique. Will this praise continue to fall on deaf ears in 2011? At press time, CriticalControl traded at a market cap of approximately $30 million dollars, despite having more than $48 million in revenue in its past four quarters.
Disclaimer: This article is supplied for information purposes only. Cantech Communications makes all reasonable attempts to ensure the timeliness and accuracy of the information provided in our website. However, there are no representation or warranties as to the accuracy, reliability, completeness or timeliness of such information. This information should not be construed as investment advice and is not intended to solicit the buying or selling of any stocks mentioned. Investors should complete their own due diligence before making any investment decisions. From time to time Cantech Letter may profile our client companies or companies we have personally invested in. In these cases we will expressly disclose this relationship.
Disclosure: At publication date Cantech Editor Kirk Exner owned shares of Burcon Nutrascience and Electrovaya.