In a broad sense, technology stocks cover a far wider area than the applied science group as they are generally taken to mean. Important technological changes, for instance, are taking place in the hitherto technically conservative food industry, which could materially affect its operations over the coming decade.

Primarily, however, technology stocks concern those companies whose success rests on the application of brainpower to an engineering type of activity. Rewards should prove substantial for those who have the foresight to pick those companies which are strategically situated to exploit the potential in the new areas of science and technology.

If you are investing with the aim of achieving maximum profit potential, you should choose a company comparatively small in size and heavily concentrated in its chosen area of technology. Then, any major product breakthrough in this area would be explosive in sales and earnings.

Surely the 60-second camera which propelled Polaroid to Wall Street heights could also have meant a lot to Eastman Kodak. But, because of Kodak's very size, it could not have meant the same as it did to Polaroid in 1948 when the company had sales of only $1.5 million. The impact of even a major product break through tends to be diluted in more diversified operations, the size of, say, Eastman Kodak, General Electric or Westinghouse. But their very size and in many instances also their substantial interest in other less dynamic phases, mean that the success of any one product will not make them, just as its failure will not break them.

A company with many diverse activities would have to be pretty lucky if all its entries in the technological race were to end up winners. Thus the chances of capital appreciation, if also the risks of loss, are increased measurably by selecting companies that emphasize a specific technology.

For the sake of clarifying this point further, let's consider microwaves, one of the great new dynamic areas of growth in electronics. Microwaves are extremely short radio waves ranging from 300 to 300,000 megacycles, with frequencies falling between the television and infrared spectrum. The industry is just starting to pioneer the use of frequencies over 30,000 megacycles. Its application to defense and commercial communications are said to be only beginning, especially in long-range communications.

Many of the leading electronic firms, such as RCA, General Electric, American Telephone & Telegraph, Raytheon, and Philips Lamp, are now microwave-conscious. However, they have stakes in so many facets of electronics that microwave constitutes just one segment of their over-all operations. The logical way to achieve maximum results from the microwave (which is expected to double, if not triple, in the next five years) is to take positions in those companies which are heavily exposed to microwave technology.

Two of the most promising fields of microwave technology are microwave tube manufacture and microwave test equipment and components. In the former area, Varian Associates and Eitel-McCullough are heavily concentrated while Hewlett-Packard, FXR and Polarad Electronics are concentrating in the latter field.

And, of course, we have Microwave Associates, one of the leading companies in microwave technology, known particularly for its development of microwave components for the millimeter wave-length range, duplexing tubes and microwave silicon diodes-Its reputation in the microwave component area is matched only by Hewlett-Packard, FXR, Inc., and PRD Electronics division of Harris-Intertype Corp. In silicon diodes for the detection and amplification of microwave signals, its record is superior to that of any of its competitors, such as Sylvania Electric Products or Hughes Aircraft.

Most microwave companies are relatively small ones with a relatively small equity base. Their size still leaves considerable room for growth.

What's true of microwave technology is also true of other dynamic areas of growth where invariably we find quite a number of companies participating. However, only a comparatively few of them would be found to be actually concentrating therein. Take infrared, for instance. While no less than a dozen concerns have some stake in the field, only two, Barnes Engineering and Baird Atomics, are actually concentrated in this area. Especially Barnes, which has practically devoted its whole resources to that area of electronics.

For other examples of maximum exposure to a specific technology, we have the above-mentioned Baird Atomics and Farrington Manufacturing in optical scanners; Varo Manufacturing in molecular rock circuitry (the tiniest circuitry system as yet devised); Control Data and Data Control Systems in computers; High Voltage Engineering and Radiation Dynamics in particle accelerators; Loral Electronics, Edo Corporaton and Sanders Associates in antisubmarine warfare; Air Products and Hofman Laboratories in cryogenics; Chicago Aerial, Technical Operations, and Kalvar Corporation in special photographic processes, etc. This list could be much longer, of course.

For all the advantages inherent in investing in companies of maximum exposure to a specific technology, a good deal can be said against this type of investing.

"Don't place all your eggs in one basket," goes the old saying. Though maximum exposure to a specific area of technology is not exactly placing one's eggs in a single basket, it's certainly the opposite to product diversification, or what some security analysts fondly call a "balanced" product mix. If something should go wrong in the area in which a company is concentrating, they argue, or if that technology should fail to live up to expectations, it would spell trouble or even disaster to the company.

The answer, then, would seem to be choosing a scientific or technological firm which is broadly based. A good example of companies with a "broad product mix" is the recently merged Ling-Temco-Vought, Inc., which is "an organization with the ability to project itself profitably into the future with an experienced, aggressive management team; enhanced financial strength; and greatly increased creative and productive capabilities." It represents a major participation in all phases of the aerospace, electronic, communication and aerosystems industries.

Another way to reduce risks is to buy and hold a cross section of young, imaginative science companies—each a leader in its chosen field.

The world stands at the threshold of a decade dominated by science as no era has been since the days of Isaac Newton. The opportunities present in well-selected situations in such clearly defined dynamic areas of growth as infrared, microwave, optical scanner, computer and data processing should considerably outweigh the risks normally involved in participation in the early-stage companies of young industries.

I find myself in agreement with the Loeb, Rhoades researchers, who pointed out that: "In this field where the process of creative destruction is so virulent, the indicated approach for those who want to participate to the fullest is to own a package of a number of well-chosen, smaller, lesser-known companies.

"For the more conservative investor large companies giving some exposure to specific, attractive technologies would be the next best choice."

A free source for investment opportunities in science is Harris, Upham & Co.'s well-researched Science and Securities which is a "Review of Scientific Developments for Today's Investor." Each month the Harris, Upham publication reviews what it considers as the significant developments in the world of science under such broad categories as electronics, nucleonics, drugs, chemicals, accompanied by a list of selected issues for each.

For investors who are willing to spend more time in seeking out promising young companies in the various embryonic fields of science and technology, the field to be covered is virtually unlimited, for every scientific, technical, business or trade publication or even daily newspaper might contain some information of interest to investors.

As a guidance for checking out science stocks, you would do well to study the six guideposts which are followed by a blue ribbon science venture capital firm called Draper, Gaither & Anderson which operates in the twilight zone between investment banking and commercial banking with primary interest in budding technological fields.

Its six guideposts in appraising science investment are: 1. The company must have an unusual product line or service; 2. The product or service must have been substantially developed, and the time or cost of bringing it to the market should be predictable; 3. A ready market for the product or service must be visible; 4. The company must have qualified management either on the payroll now or readily available; 5. There must be prospects for substantial growth in sales and earnings in the foreseeable future; and 6. Ownership of the company must be limited and its securities privately held.

These guideposts are cited here in order to give you some idea about some of the things you should look for in a science stock. Since you are studying the situation as a prospective small stockholder, you could well discard some of those guideposts which are of interest only to a prospective major investor. However, you should get off to a safe start by making sure that the young company in question has a "substantially developed unusual product line or service," with a "ready market" and "prospects for substantial growth in sales and earnings in the foreseeable future," or, in the case of a product under development, the "time and cost of bringing it to the market should be predictable."

If you come across a company which measures up to the above standards and which should be found to be in one of the embryonic fields of today such as microwaves, infrared, energy conversion thermoelectrics, thermionics, new photocopying and photographic systems, computers, or automatic data processing, it might be the stock to buy—with, of course, the proper exercise of timing.

The following chapters will cover some of the areas which are considered to be promising in applied science.

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