The biggest gains for investors come from buying stocks that are out of favour and holding them until the herd falls in love with them again. With that in mind, it’s worth taking a look at Westaim Corp. (T.WED).
Calgary-based Westaim invests in high-potential technology businesses. Its two investments are flat-screen television technology developer, iFire Technology, and NUCRYST Pharmaceuticals, maker of the Acticoat anti-bacterial wound dressings. Having spun-off the bulk of NUCRYST last year, Westaim is now banking on iFire to as its next ticket to success.
Since April, Westaim shares have fallen nearly 75% on the TSX as investors worried about the length of time it is taking to find a manufacturing partner for iFire’s TV display technology. With the stock trading at just $1.73, the market is saying that the iFire technology will never become commercial.
Slow development is certainly disappointing for investors, but there are reasons to think it’s too soon to write-off the technology’s prospects.
For starters, iFire’s new high-definition display – known as “thick dielectric electroluminescent technology” TDEL) – has been hailed as a cheaper and technologically superior alternative to conventional plasma or liquid crystal display screens already on the TV market.
iFire’s technology requires far fewer manufacturing steps than LCD or plasma -- driving down the cost of producing a flat screen TV. At a production cost as low as $300 per unit, electronics stores could sell 37” iFire-powered sets for as little as than $1000. That’s less than half the cost of models available today.
At the same time, the TDEL’s solid state technology delivers picture quality that not only meets but beats that of LCD and plasma screens and supports state-of-the art high-definition HDTV.
Quite simply, the technology promises price and performance that could change the flat TV landscape, expanding what is already a $50 billion market.
High quality screens are now coming off the iFire assembly line, and the company is now in the final stages of launching its flat panel TV pilot line.
What’s more, management continue to work towards inking a joint venture with a big name flat-screen TV manufacturer. Westaim management concedes that it misread the work involved in obtaining a deal, but says that interest in the technology “remains strong”.
Given the growing desire in the TV manufacturing market for a much more cost effective flat panel display, a real commercial opportunity for high volume production may be getting closer to reality.
Westaim still has plenty of cash to move forward with iFire development. In the most recent quarter, Westaim had nearly $47 million in cash available for iFire. In the same quarter, iFire spent about $5.4 million on R&D. That means, assuming spending stays at the same level, Westaim has about ten quarters left of cash for iFire.
Of course, Westaim remains a speculative buy. Investment risks -- including failure to eventually sign a JV agreement, the threat of new competing technologies and unexpected changes in TV buyer’s habits -- could knock the stock down further.
Yet, with the stock price so low, downside risk for investors is minimal. Moreover, as the iFire technology gains a foothold in the marketplace, the shares could see sizable appreciation. Even with late 2007 targeted for a JV partnership and mass production pushed out to 2008, investors’ hopes should not be dashed – at least not yet.
At today’s price, Westaim shares look like a pretty good bet.
Ben McClure
