Coming up next month, we’re about to have a golden opportunity to see a key aspect of my investing philosophy in action.
Just because Wall Street might panic after catching a scrap of bad news doesn’t change the fundamental outlook of an investment.
There’s no better time to keep than in mind than right now, with a firm I’ve been keeping my eye on about to report earnings.
That report is giving us a chance to repeat a big win that I called back on July 26 of 2019, when I brought you a medtech leader that I still believed in, even when their stock had just gotten throttled.
Bear in mind, I made that call the day after the company lost more than 25% of its value in a single session. I still believed in them then, and I was right. Since then, they’ve offered a potential 191% return.
Over the years, I’ve found that out-of-favor tech stocks can present huge buying opportunities because, after 37 years of experience in Silicon Valley, I know the lay of the land
And now, with their earnings report coming up next month, let me show you five very important reasons why I still believe in this company just as much as ever…
A Million Dollar Smile
Back when I first recommended this stock, it was a pretty bold call to make.
Not only was the stock out of favor, but it was a play on dental technology.
To be candid, it’s not exactly the most exciting field, taken on its own.
Of course, if you’re like me, making piles of money is exciting enough all on its own – and if you can beat Wall Street at its own game at the same time, well that’s a tremendous bonus.
And that’s exactly what we did with Align Technology Inc. (ALGN). The firm is best known for making Invisalign dental braces.
Unlike the big and very noticeable braces you may remember from your childhood, Invisalign looks more like a clear, molded retainer that’s difficult to spot.
The story of these invisible retainers has gotten some great traction over the years. Align’s popularity is clear from their social media presence and their 306k followers on Instagram.
They’re leaving an even bigger mark on social media thanks to their “SmileSquad” program for influencers. The subscriber counts for their top 20 participating influencers reach 302 million when combined.
Even though that doesn’t factor in the possibility of repeat subscribers, it’s still equivalent to more than 90% of the entire U.S. population, a very impressive footprint.
But here’s the secret most investors don’t know; Align also is a great play on 3D printing technology. That’s the process of making objects from 3D models by “printing” them with successive layers of specialized materials.
Using this advanced process, Align manufactures its products to the highest possible standards while also greatly cutting overhead.
It’s one of the reasons the company is expected to double its earnings this year. Indeed, Investor’s Business Daily says Align has become the world’s largest 3D-printing firm.
In short, Align provides orthodontics more efficiently than the competition.
And since the dentistry market is at no risk of going away, it’s a lucrative niche to target.
To see how good Align’s investment case is, let’s run it through my five rules for building tech wealth. Take a look:
Tech Wealth Rule No. 1: Great Companies Have Great Operations
These are well-run firms with top-notch leaders.
Over the last couple of years, the firm has worked hard to make sure all its units are running smoothly. Last January, it set up new headquarters in Tempe, AZ, and announced plans to expand globally.
The company said it will open a plant in Poland to pick up new sales in Europe, the Middle East, and Africa. The expansion represents more than 150 million potential new clients.
Already, Align boasts nearly 1,000 patents and a strong market position with roughly 10.2 million Invisalign patients. Boasting an 18.2% return on equity, Align now has $672 million in free cash flow, twice what they had one year ago.
Tech Wealth Rule No. 2: Separate the Signal from the Noise
To create real wealth, you have to ignore not just the hype from the company but the noise you often hear on Wall Street.
And that goes both ways. When a stock is popular, Wall Street just can’t seem to heap enough praise on the firm. But should it miss expectations, even by a small amount, the so-call “pros” often hit the panic button.
That’s exactly what happened on July 26, 2019, after Align announced its second-quarter earnings. It didn’t matter that their profits per share were up a whopping 40%. The company lowered its guidance for the next quarter.
Wall Street’s noise said to sell, and the stock dropped by 25%. As I just noted a moment ago, that was the time to buy.
From that moment, the stock crushed the benchmark S&P 500 by an astounding 394.8%.
Tech Wealth Rule No. 3: Ride the Unstoppable Trends
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Align’s Invisalign product alone puts the company squarely in the middle of the huge cosmetic medicine market. Grand View Research says the sector will grow from $52.5 billion from the base year of 2018 to $103.4 billion in 2026.
That’s a compound annual growth rate of 8.9%, buoyed by the hundreds of millions of millennials entering adulthood and becoming financially capable of adjusting their smiles.
We also get the benefit of 3D printing technology. That market is growing by 21% a year and will be worth $20.2 billion by the end of 2023.
This isn’t novel speculation. We’ve already seen the kinds of gains a leading innovator in medicine can deliver, with IPO investors in Moderna Inc. (MRNA) seeing gains of 227% by November 2020.
And investors who managed to claim a stake before the IPO stood to make almost 300,000% gains by November 2020. The thing is, opportunities like that in unstoppable sectors are still out there.
Tech Wealth Rule No. 4: Focus on Growth
Companies that have the strongest growth rates almost always offer the highest stock returns.
Dentistry and orthodontics are niche markets that most investors don’t really think about. But the prevalence of dental insurance here in the U.S. and a rising global middle class means Align is in a great position to keep growing. After all, there’s plenty of demand out there for perfect teeth at a good price.
In fact, over the past three years, the firm has grown sales by an average of 16%. At that pace, they could double every 4.5 years.
Tech Wealth Rule No. 5: Target Stocks That Can Double Your Money
This is where we look at the firm’s earnings growth and see how long it will take to double profits. By doing that we can figure out how long on average it should take for the stock to roughly double.
Over the last three years, Align’s earnings had fallen off sharply. This explains why it has worked hard to improve profit margins even as it expands internationally.
That effort has really paid off. For the March quarter, per-share profits were up an astounding 240%. They are expected to double for the full year.
I’m now projecting a very conservative three-year earnings growth rate of 22%.
Now we use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound growth rate of 22 into the number 72.
We find that it should take less than 3.5 years for Align to give us 100% gains.
Now then, the firm reports again on July 28. Should it miss forecasts, you know just what to do – buy more shares.
By adding to your investment, you will continue to beat the broad market with a savvy tech play that will grow your profits for years to come.
Cheers and good investing,
— Michael A. Robinson
Source: Strategic Tech Investor