Mutual fund superstar Peter Lynch used to say that individual investors had a big advantage over Wall Street. If you just keep your eyes and ears open, Lynch would write, you’re bound to see big profit opportunities long before the investment-banking boys in New York.
And the biggest opportunities are often right in your own neighborhood.
Lynch knew his business.
For months now, we’ve been talking about a “ground floor” investing opportunity – a whole new business that I believe could triple or more in just the next few years.
Well, just the other night, as my lovely wife and I were strolling to a village restaurant near our home, I ran right into proof that this potential $6 billion industry has already grabbed a big handful of the all-important consumer market – just as we said it would.
This was more than just validation: It tells me this market is evolving even faster than I projected – and says I may have underestimated the overall market potential.
And that’s not all.
My “Peter Lynch moment” the other night served a “Buy” signal trigger on a stock with double-your-money profit potential.
It’s a stock that I’ve been watching for some time. And today I’m going to share the whole story …
Shaking Up Silicon Valley
In the middle part of this summer, Money Map Press Executive Editor William Patalon III interviewed me about some of the top tech-investing trends that I was following. One fascinated him so much that we published it as a Q&A piece in the July 19th Strategic Tech Investor.
As it turned out, the topic fascinated all of you, too – and generated one of the biggest responses of any column we’ve published since launching this newsletter.
The focus on that interview was 3D printing – a newly emergent technology that will allow major corporations and solo entrepreneurs to “print” such items as custom guitars, car parts, dental implants and perhaps even human organs.
I can certainly understand the enthusiasm: Researcher Wohlers Associates says current industry sales – 3D printing machines and supplies – of roughly $2.2 billion will nearly triple to $6 billion worldwide by 2017.
Investors will be able to “print” profits.
The part that I underestimated was how quickly 3D printing would reach Main Street America – and become a mass-market business play.
As I discovered during our village stroll the other night, that’s already happening.
A new retailer, HoneyBee3D, set up shop here in Montclair, an upscale section of Oakland. Rubbing shoulders with restaurants, drug stores and dry cleaners, HoneyBee3D sells 3D printers and consumables, and offers training classes – and is the first store of its kind in Northern California.
Owner Nick Kloski told me he and his wife decided to locate HoneyBee3D in the heart of a retail district because the technology is now becoming mainstream. The couple plans to pull clients from local businesses that want to get involved in the 3D-printing revolution.
They’ll also cater to hobbyists and other mainstream consumers – folks like Chris Ulbricht, whose six-year-old son loves to draw and build things.
“I believe that by the time he is a teen, he will be building with this,” the senior Ulbricht said, pointing to a 3D printer. “It’s a stroke of luck that we have this in our backyard.”
So you don’t think that I’m basing my investment case for 3D printing on a single store, consider this: The industry is growing at a compound annual growth rate (CAGR) of better than 25% – which is why the Kloski’s tell me they’re planning to open another store in the next few months … this one in the tech epicenter of Silicon Valley.
And they’re not stopping there: After that, they intend to open five more stores, for a total of six new outlets in 2014.
On a recent Saturday night, the small storefront company had more than a dozen people attending a workshop on how to break into the 3D printing business. These aspiring entrepreneurs might want to create “prototypes” under contract or to become parts suppliers. Or these folks might even want to develop their own products, which they could then “print” and sell directly to the consumers.
As I’ve said in the past, the only limitations to 3D printing are the imaginations of the people who are using the equipment.
Before we take a look at the specific stock that I like, let’s make a closer study of the sector itself.
A Move to Main Street
3D printing is a “transformational” business – one that will not only change existing industries, it will also create entirely new ones … much like the PC boom paved the way for the desktop-publishing revolution of the 1980s.
What’s new about the 3D sector is that the printers don’t use ink to “print” images onto paper or other media. Instead, they create full-dimensional objects by using special plastic-based powders and metals – laying down successive layers that are held together by binding agents.
In practical terms, this means that you could take an idea for a replica car or a camera lens made of acrylics, scan a blueprint into the system and have your creation emerge. Companies often use these printers to make the prototypes in only a few hours – instead of in days – which is why the industry is referred to as “rapid prototyping.”
This is a big, big potential market. And the profit potential is just as immense.
In fact, my recent visit to HoneyBee3D illustrates what I’ve been telling investors for quite some time: 3D printing is a technology that’s destined to touch every corner of America.
And there’s one company in particular that’s poised to reap the benefits.
A Powerful Profit Play
The financial markets are starting to recognize the potential that we’ve been telling you about for more than a year.
Just last month, for instance, Germany 3D printing player Voxeljet AG (NYSE: VJET) went public, and saw its shares zoom 122% on their first day of trading.
Like most successful IPOs, Voxeljet had a great “story” to tell investors: The company’s technology was used to make three Aston Martin model cars featured as props for the James Bond flick Skyfall.
The successful Voxeljet IPO underscores my point that investors can quickly double their money with the right 3D-technology stocks.
And there’s one company that offers the perfect balance at this market juncture: It’s established enough to provide some predictability, but racy enough to offer a hefty upside.
I’m referring to the Rock Hill, S.C.-based 3D Systems Corp. (NYSE: DDD), a company that helped pioneer the 3D printing field and that remains at the industry’s leading edge.
The late Chuck Hull founded the company back in 1986 with an original patent for a process known as “stereolithography.” This technology relied on lasers trained on a vat of special polymers to make prototypes.
Around that same time, Hull and his team came up another big innovation. They developed the so-called “.stl” file format, which remains in use today. These .stl files are needed to execute the digital “handshake” that connects the computer-aided design (CAD) software with the 3D printer.
As a sector pioneer, 3D Systems has amassed more than 400 patents, giving it a storehouse of intellectual property that few other firms can rival. And it didn’t stand pat: The company grew through strategic acquisitions, as well as via organic growth.
New products continue to appear.
Just last week, in fact, the firm introduced a new 3D digital photo scanner called the Sense. About the size of a smartphone, the $399 device can capture images as small as a cupcake or as large as full human body – and then convert that data into a 3D-printable file in a matter of seconds.
With innovations like these, it’s no wonder that last September the firm made the list of Fortune magazine’s fastest-growing firms in America, coming in No. 2 in high-tech and No. 5 overall.
The company made an acquisition in each of the months of July, August and September. In recent weeks, it has expanded its presence in China and added manufacturing capacity at its plant in South Carolina.
With a market cap of $7 billion, the stock trades near $70 a share. Over the past three years, DDD has grown sales at an average yearly rate of 48% and earnings per share (EPS) at 80%.
On Oct. 29, the firm said third-quarter revenue grew 53% from the year-ago period to a record $135.7 million. It also raised guidance for full-year sales, but maintained profit guidance at 93 cents to $1.03 per share.
Ordinarily, I would see higher sales guidance without the accompanying increase in the bottom line as a bit of a cautionary red flag.
But, as we said at the outside, it pays to keep your eyes open. In this case, the situation we’ve described underscores that 3D Systems is planning for the future.
The company says it wants to maintain its “first-mover advantage.” So it’s investing the windfall from the better-than-expected revenue into R&D for new products and the outlays associated with entering new markets.
Even with these investments, the sales-and-profit numbers we’re talking about here show that 3D Systems meets Rule 5 of my tech-investing system: It has the power to double.
After the recent earnings report I expect the company to grow earnings by around 25% annually, meaning it could double in less than three years.
And you’d be hard-pressed to make that kind of money elsewhere – even if you printed it yourself.
[Editor’s Note: Your feedback is very important. As always, I welcome your comments, questions, suggestions, and opinions. Post a comment below … I look forward to hearing from you.]