Tomorrow's Leaders: Ten Canadian Tech Stocks for the Future At Cantech Letter we like value. Talk to us about a tech stock trading under one times sales with 45% of its market cap in cash and our ears perk up. Admittedly, though, being an adherent to any discipline mean you sometimes miss stuff that falls outside your parameters. The Canadian techs listed below are by no means smoke and mirror jobs. There's no illusion to the leadership role Westport Innovations (TSX:WPT), which has its roots at The University of British Columbia, has carved out for itself. But at nearly five times sales, the stock falls outside our screens for value; we like to uncover Canadian techs trading under one times sales. That said, the ramifications for Westport's natural gas engine technology are absolutely immense, meaning the company may fill in the value behind that multiple with an ease that value plays cannot. This list consists of a mix of companies, there are those like Westport and NEO-Material Technologies (TSX:NEM) who are well beyond guessing whether their technology is commercially viable, yet still look out onto vast untapped markets. Still others here, like our number ten, Zecotek Photonics (TSX:ZMS), are on the verge of commercialization. Pick up a paper in five years time and its likely that at least one of these companies, perhaps a few, have become the next big (Canadian) thing. What follows is ten Canadian tech stocks with ideas big enough to hit the big time. 1. Neo-Material Technologies (TSX:NEM) Toronto based NEO-Material Technologies is producer of neodymium-iron-boron magnetic powders (Neo Powders), rare earths and zirconium-based engineered materials and metals. Granted, that doesn't sound too sexy. But consider what rare-earth metals are used for: catalytic converters, computers, television display panels, optical lenses, and electronic chips. Rare earth metals are used for hard-disk drives, in wind turbines, and in the electric motors of hybrid cars. A single Toyota Prius, for instance, uses 25 pounds of rare earth elements. If you have a Blackberry or an iPhone, own a plasma TV or use a GPS, you are already a consumer of rare earth metals. And NEO-Material is no neophyte; last year The Company earned $.017 cents a share on revenues of $187 million and has secured lucrative joint ventures with giants like Mitsubushi. Bob McWhirter of Selective Asset Management believes NEO-Material Technologies could succeed in any or all of a number of multiple revenue streams. McWhirter is is excited by the potential for the company to surge on demand for netbooks, for instance. But the picture is larger still: "The stock is speculative" McWhirter says " But one extremely appealing aspect of NEO-Material is that is provides an investor with exposure to a number of green technologies, including wind power and electric vehicles." 2. Electrovaya (TSX:EFL) What's behind the recent run-up in Electrovaya shares? The long answer is a more than a decade's worth of pioneering work and 150 patents on its lithium ion battery technology. The short answer is Chrysler. On March 24, Electrovaya announced that it had been selected by Chrysler to supply the battery for a hybrid version of the Dodge Ram pickup. The Company also appointed former Chrysler CEO (and Windsor Ontario native)Tom Lasorda to help guide them through the process. 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 utilites 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. 3. Resverlogix (TSX:RVX) Shares of Resverlogix rose after a Bloomberg BusinessWeek article on March 5th speculated that the company "may accomplish what Pfizer Inc., the world\u2019s biggest drugmaker, couldn\u2019t: Creating a new medicine that fights heart disease by raising so-called good cholesterol." See this months cover story for a "5 Questions" interview with Resverlogix President and CEO Donald McCaffrey. 4. DragonWave (TSX:DWI) You downloaded an app on your iPhone 3G today. Or pinged a friend using your Blackberry Bold. Or PVR'd a movie. Our appetite for wireless data has become unquenchable. And Ottawa's DragonWave is at the gate, taking a toll. Dragonwave's products provide wireless microwave transmission of broadband voice, video and data, which has become cheaper and easier than fiber. The Company's primary clients are service providers. Well, more to the the point, Clearwire. DragonWave suffered its first real setback in more than a year when its recent fourth quarter results showed that 87 percent of the company\u2019s revenue in the quarter came from Clearwire. Still, the resulting analysts cuts were not that deep for a stock that had risen so sharply. Many believe that as large carriers like AT&T and Verizon roll out into suburban and rural areas, where microwave equipment has natural advantages over fiber, DragonWave will have little trouble achieving a more healthy diversity to its client base. 5. Westport Innovations (TSX:WPT) "You know I'm excited about this...I need you to check my enthusiasm..." On June 3rd of this year Jim Cramer of CNBC's Mad Money's was positively gushing in an interview with Westport Innovations CEO David Demers. Cramer felt the political winds of change were behind the Vancouver based developer of natural gas engines. Demers, clearly not as prone to bombast as the volcanic host conceded that "The spill in the gulf is a wakeup call that we need to do something now." That something, the adoption of natural gas as what Cramer called a cleaner "transition fuel" that could bring energy independence to the United States, will be helped along by Westport Innovations, which has already partnered with three of the world's top four top engine makers. It would have been hard to imagine such "A" grade exposure years ago. Founded in 1996, Westport grew out of a research project by Professor Philip Hill at the University of British Columbia's Mechanical Engineering Department. Hill was developing a concept called high pressure direct injection (HPDI) of natural gas. In 1994, through UBC's University-Industry Liaison Office, Hill met current Westport CEO David Demers. In 1995, with HPDI technology as its principal strategic asset, Westport Innovations Inc. was formed. 6. Zarlink Semiconductor (TSX:ZL) Ottawa's Zarlink has been around for quite some time, but has subtly shifted focus of late, entering more specialized markets that leverage expertise the company has gained over three decades. Like most Ottawa based telecom companies, you don't have to go looking too far for Terry Matthews fingerprints on The Company. Zarlink was born out of the telecommunications division of Mitel, its name derived from the phrase "tsar of links" reflected its early history in networking equipment. Recent acquisitions and joint ventures illustrate Zarlink's move away from general chip business and into more specialized business, in particular businesses that leverage the company's leadership position in low-voltage technology. Situations where low power requirements are important is Zarlink's wheelhouse, and those seem to be everywhere now, including specialized items to medical devices, devices used in smart phones and in the companys' most recent venture -a deal with CADEKA Microcircuits to tackle the CCTV and video surveillance market. 7. Theratechnologies (TSX:TH) It has been a wild ride of late for Theratechnologies. In May, the FDA released documents showing that The Company's new drug, Egrifta, might increase the risk of Diabetes. Share of Theratechnologies plunged, losing $2.28 on May 25th to close at $2.09. But in a 16-0 vote in Maryland, the Food and Drug Administration approved the experimental treatment for patients with HIV-associated lipodystrophy, a side effect of medications used to fight the AIDS virus that causes excess fat to accumulate in the abdomen. After being halted May 27th, shares of Theratechnologies rebounded to close at $4.85 on May 28th, approximately where the stock has traded since. 8. Sensio (TSXV:SIO) With the possible exception of DragonWave, Sensio was the market darling of 2009. After closing 2008 with a stock that went for little more than a dime, Sensio closed the following year at $3.18. The story behind the rise? Late in the summer of 2009 Sensio received a US patent for its 3-D technology. The patent was very wide-ranging, giving Sensio "...exclusive operating rights over its whole method of compression, decompression, formatting and playback of stereoscopic content for various 2-D and 3-D screens, and applies to the markets for home theatre, professional movie theatres, personal computing and mobile telephony". Sensio then went on to make deals, signing agreements with ViewSonic, THX and a recent deal with Cinedigm to broadcast the 2010 FIFA World Cup final in 3-D in Cinedigm theatres. 9. Isotechnika Pharma (TSX:ISA) Timing. Shareholders of Isotechnika thought they had it in 2002 when The Company signed a major deal with pharmaceutical giant Roche around their drug voclosporin, which is designed to organ rejection in transplantation surgery. After a painful and drawn out process that saw shares of ISA fall from north of $5 in 2002 a share to mere pennies, Roche got out of organ transplantation altogether in 2008, returning the rights to the drug to Isotechnika. A major partner completely backing out might be the worst news possible for a junior looking for FDA approval, but as it turned out, this was far from the final chapter for ISA. The treatment started to show promise for reat uveitis, a chronic inflammation of the eye that causes vision impairment, ocular pain and loss of vision. And then voclosporin started showing promise for treating psoriasis. It's too early to label voclosporing a wonder drug, but with a new partner, Lux Biosciences onside ISA has every chance to move beyond a pure R&D performing company and into the realm of revenue generator. 10. Zecotek Photonics (TSXV:ZMS) 3-D is everywhere right now. James Cameron's Avatar seems to have been that Tipping Point moment. Now every major movie, it seems, has at least a limited 3-D release. 3-D televeision has become the must have item for tech geeks on the cutting edge, even though there is little 3-D programming available. Shares of IMAX have tripled. Too many junior stocks involved with 3-D technology have doubled or tripled to mention. Now what about those glasses? Granted, 3-D glasses have become a little less goofy looking, but donning a pair of heavy shades is still basically the same experience that patrons of It Came from Outer Space had in 1953. Couldn't someone just invent 3-D without the glasses? That feat is easier said than done, but when you view Zecotek's 41-view 3D2D Display, as I did last month at their UBC headquarters, you realize this company may be on to something big. Walk right up to a Zecotek image of a vase of flowers. Now angle yourself to the side and you can look behind flowers in the front of the vase to see those in the back. This is called occlusion effect. It's not only light years ahead of your local Cineplex experience, it's also safer. The "motion parallax" and freedom of position for the observer inherent in Zecotek's solution eliminates the sense of imbalance and dizziness during normal observation which can occur with polarized and shutter glasses. Too a degree, Zecotek's business plan will only move as fast as end users adopt it. A full 3-D movie using this technology, for instance, would reproduce many more views from different angles. It would require two or three more cameras to shoot additional angles, but not forty as data conversion software would fill in the blanks. With the right partner, (earlier this year Zecotek displayed the product to select number of European display manufacturers, with an eye towards a manufacturing or licensing partnership with a major original equipment manufacturer) there are no shortage of ways to commercialize this technology from here. Think 3-D signs and movie posters. Zecotek's technology may also be a game changer for geophysical data, medical imaging, scientific research, pharmaceutical industry other industrial and military applications.