To quote my favorite investor of all time, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years” (Warren Buffet). Three years ago I found exactly that type of company and I am still just as dedicated to my position as I was back then when I bought it. Before I give this company’s name, try to think of some reasons that might warrant holding a company “if the market shut down for 10 years.”
(1) A strong, sustainable competitive advantage.
(2) Unparalleled management that understands the importance of its shareholders.
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
(3) A company that society values and will continue to value into the future.
(4) A product or service that has high margins and continually needs to be replaced or continually produces cash.
These are the four most prominent reasons why I become a long-term holder in any company, not just this one.
The company is a small biotech by the name of Nanologix. To quote the company’s website, “The primary focus of Nanologix is rapid detection of bacteria and other microorganisms.” Nanologix has developed what the CEO calls the “new gold standard” for detecting microorganisms. The product is basically a replacement of the traditional petri dish. It looks the same and does the same thing but faster through the use of proprietary technology called a BioNanoPore membrane (or BNP as the company calls it). They company has a list of about 33 patents although the BNP is really their bread and butter. Their device was tested by Battelle Memorial Institute, they’ve recently signed a contract with the EPA (though the details have yet to be released) and they’ve also received interest from several large companies although none of these have yet to be named.
So let’s go over how this company falls into each of the 4 categories I mentioned above:
(1) Since they have patented technology that is faster than the current technology, as well as a much lower cost compared to the competing technology, there is a very strong competitive advantage here.
(2) The CEO, Bret Barnhizer, is dedicated to the company and extremely shareholder-friendly. When he took over the company a few years ago he cut stock options, and being a large shareholder himself he immediately went to work trying to realize the value of the patents the company holds (focusing first on the BNP). He is also very tight-fisted when it comes to spending money and even aided in the construction of the clean room for the production facility himself. If you call Nanologix and ask to speak to investor relations do not be surprised to get a call back from Bret himself.
(3) Given the threat of bio-terrorism, the spread of superbugs, and the rapidness of our society in general, a product that lessens the time it takes to detect organisms will be around for a long time.
(4) Although the margins for this product are not yet known, the product is like a razor blade in that it has to continually be replaced—providing a steady stream of cash. My guess is that margins will be quite high considering it is a proprietary technology that beats out extremely high-priced machinery that it competes with.
Nanologix fully satisfies these four fields in my mind. It currently trades at $0.90 per share which still makes it attractively valued with a market capitalization of around $95 million. The company has the potential to grab 1-2 billion dollars of a 6 billion dollar market and at a price-to-sales ratio of 1 its price could range anywhere from $10 to $20 per share in the future. If the market shut down for ten years I would be happy holding this stock for the duration.
Please join my community at http://intelligentinvestors.org