At the start of the year, I was asked to pick a name that I thought could be the “stock to watch in 2022”. Naturally the tendency is to step a little further out the risk curve because where’s the fun in picking something like Enbridge, Inc. (TSX: ENB | NYSE: ENB) and being up 15% year-to-date plus dividend when you could be up 130% over that same time period with a stock like Ensign Energy Services, Inc. (TSX: ESI). In reality, I would have been a hero if I had picked either of those in light of what the majority of the market has done since the start of 2022. However, I went down the technology route (or should I say rout) and the name I picked has been swept lower in a market beating up anything resembling tech. On top of that, the company I selected was also the focus of a short report, although that appears to have been addressed in March and seems to be a non-issue. But technology stocks are still seeing some pretty unpleasant days here and there, and the pain may not be over yet.
Nevertheless, until the year is over, I still have time to be vindicated with my 2022 pick – Zentek Ltd. (NASDAQ: ZTEK | TSXV: ZEN), which is certainly doing better than Shopify, Inc. (TSX: SHOP | NYSE: SHOP) but sadly that’s not setting the bar too high. Reader’s will recall that Zentek is an IP development and commercialization company focused on next-gen healthcare solutions in the areas of prevention, detection, and treatment. Zentek is currently focused on commercializing ZenGUARD™, a patent-pending coating shown to have 99% antimicrobial activity, including against COVID-19, and the potential to use similar compounds as products against infectious diseases.
The focus on ZenGUARD™ is paying off with an announcement last week of the sales and distribution of ZenGUARD™ Masks through Mark’s, a member of the Canadian Tire Family of Companies. Mark’s, which operates over 380 stores across Canada, has placed an initial order for ZenGUARD™ coated masks to be sold at select stores and online. Mark’s VP Iain Summers is quoted as saying “We are relentlessly focused on innovative new technologies and products that help keep Canadians safe and comfortable. Zentek, and their ZenGUARD™ masks are a great made-in-Canada innovation using a technology that, when applied to essential masks, provides ultimate protection, while maintaining comfort and breathability. It’s the right fit for our customers.” This news helped Zentek stock rally 14% on the day.
It was the progress the Company was making with ZenGUARD™ and their other unique IP opportunities that led to Zentek being my stock to watch. Other technologies under development include an icephobic coating that can potentially be used to improve aircraft and drone safety and sustainability. The Company anticipates applications for aircraft, wind turbines, ocean vessels, and building structures to increase safety and efficiency outcomes in ice-forming weather conditions. The Company recently reported excellent results in three rounds of testing of its icephobic coating, including laboratory tests, real-world flights and applications related to drone operations in adverse weather. Next steps include testing its coating for sand and rain erosion, and other tests are being planned that will evaluate the coating as part of a hybrid ice protection system, where the icephobic properties are combined with a heated de-icing system with the aim to improve efficiency of current ice protection methods used in general and commercial aviation.
In April, Zentek provided an update on a previously awarded R&D test contract through the Innovation Solutions Canada (ISC) Testing Stream to test ZENGuard™ coated HVAC filters with interest from 3 different units within the National Research Council of Canada. After completion of Phase 1 testing where its ZenGUARD™ coating was successful in reducing airborne organisms from passing through coated filter material while not inhibiting air flow, it will now proceed to Phase 2 testing within its ISC Testing Stream contract. Phase 2 testing in a real-world classroom environment is aimed to generate additional safety and efficacy data. The importance of indoor air quality and improving health is a top priority for numerous organizations globally, including the Canadian and U.S. governments, and could be an important commercialization milestone for Zentek in this critical area.
Sure all these initiatives were already on the go at the start of the year, but in my opinion, the Company is making great strides in pushing these projects to the revenue generation stage. In fact, ZenGAURD™ actually started generating revenue in the final quarter of 2021. Additionally, Zentek raised C$33 million in January and have a quarterly cash burn rate of roughly C$2-C$2.5 million per quarter (and no debt), so they should be fine for available capital. With a market cap of roughly C$247 million there are plenty of creative and unique opportunities being developed to propel this Company into the future and vindicate my selection.