The Real Tech Boom Is Just Beginning

 | Dec 26, 2012 | 3:00 PM EST
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One of the issues the Federal Reserve has been grappling with since the last recession officially ended in mid-2009 is the lack of job creation. This is leading to new considerations about the fundamental structure of the economy and the ability of both public and private financial institutions to cause companies to create jobs. One idea being considered is that productivity increases are being achieved increasingly by companies employing automation as a means of reducing costs, especially human costs.

There is nothing new about this concept, as concerns about technology reducing more jobs for people than it creates has been a regular topic of discussion among economists since the beginning of the industrial revolution. In economics this idea is known as the compensation thesis. The thesis has held true since the industrial revolution, but the lack of job creation in the past three years, even as the Fed has maintained the lowest cost of capital in history, is beginning to cause economists to consider the idea that the thesis may finally be ending. (If that is indeed the case, it has truly profound implications for the economy and society.)

Most important for investors are the enormous opportunities resulting from the acceleration of technological advances in many areas, regardless of whether they destroy jobs in the process. The takeoff phase of the s-curve for artificial intelligence, biotechnology, biometrics, robotics, nanotechnology, genomics and other fields is beginning to be seen as companies increasingly adopt these technologies into their operations. This phase will likely last for the next five to 10 years before the acceleration phase and commensurate growth boom kicks in. During the next several years, the rate of consolidation and merger and acquisition activity in these industries will also accelerate.

Some larger and older companies will probably be the acquirers of smaller innovators, with their stock prices benefiting more quickly as well. Larger capitalization biotechnology companies to watch are Amgen (AMGN), Celgene (CELG), Biogen Idec (BIIB), and Teva Pharmaceutical (TEVA). AMGN is up 36% for 2012, CELG is up 17%, and BIIB is up 35%. TEVA is down about 7% for the year and about 28% for the past two years.

In 2011, TEVA acquired Cephalon, another pharmaceutical company. M&A activity in the space is accelerating with other previously publicly traded firms DUSA Pharmaceuticals (DUSA) and Trimeris being acquired by Sun Pharmaceuticals Industries and Synageva BioPharma (GEVA), respectively, in the past year.

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