In the late 1980s, while working as a banking analyst, I actually got up-close and personal with Carl Reichardt, who was CEO of Wells Fargo & Co. (NYSE: WFC) at the time.
And something he shared with me in his spacious San Francisco office has stayed with me ever since.
I asked Reichardt if Wells Fargo’s focus on home and middle-market loans might be considered boring when other banks were chasing more exotic investments with higher yields.
He looked me straight in the eyes and said, “If plain vanilla means making a lot of money, then color me plain vanilla.”
I bring this up because I’ve spotted a dental-technology firm that investors might at first consider ho-hum – but that’s soared 80% in the past year. That’s five times the gains of the S&P 500 during the same period.
Yes, investing in a dental company may sound dull – or maybe even painful – but this is actually a profit-producing tech superstar.
A Shopping List – and a Recipe
I’ve been thinking a lot about dental tech lately because I have an appointment to get an implant. It’s an expensive procedure, one that will cost me at least $7,500, not counting insurance reimbursement.
So, I know from firsthand experience that patients are willing to pay a bunch of money to fix their teeth.
A lot of patients.
Indeed, the firm I’ve spotted – whose technology keeps people’s teeth in proper alignment – has a potential client base of 10 million teenagers and young adults.
Align Technology Inc. (Nasdaq: ALGN) only counts about half of that target market as patients fit for its platform. But because it has so far hit only about 7% of its audience, the Silicon Valley firm still has a target-rich opportunity in front of it – and a long way to grow.
No wonder Align set the market on fire April 28, when its stock price soared more than 13% on six times its normal volume.
That’s a very bullish sign.
At the time, Align’s first-quarter sales hit a record. Overall they grew by 30%. Even better, offshore sales jumped by 41%, meaning this is a medtech leader with the potential to go truly global – and reach billions more customers.
With that in mind, let’s put Align through Your Tech Wealth Blueprint – our five rules for spotting – and creating – tech wealth. These five guidelines are kind of like a shopping list, or even a recipe – a shopping list that helps you find great companies… and a recipe for the kind of wealth that gives you a stress-free life today and a worry-free retirement tomorrow.
Take a look…
Rule No. 1: Great Companies Have Great Operations
We’re always on the lookout for well-run firms with top-notch leaders.
You’d be hard pressed find a savvier medtech CEO than Joseph M. Hogan, who joined the firm about two years ago. He spent the previous five years as CEO of ABB Ltd. (NYSE: ABB).
ABB is a $55 billion market-cap global power and automation technologies firm based in Zurich, Switzerland. During his five years at ABB, Hogan pushed through a 25% increase in sales.
Before that, he spent 25 years at General Electric Co. (NYSE: GE), where he served as CEO of GE Healthcare for eight years. During his tenure at GE, he found new markets, launched new products, and saw his department’s sales more than double from $7 billion to $16 billion.
Rule No. 2: Separate the Signal From the Noise
To create real wealth, you have to ignore the hype and find companies with rock-solid fundamentals.
If you were to follow Wall Street’s lead, you might miss this firm’s huge growth matrix. Medtech remains largely out of favor with Streeters because of the politics (i.e., uncertainty) surrounding healthcare in general.
Analysts worry that reform and/or repeal of Obamacare and the Trump administration’s proposed crack down on rising drug prices makes healthcare risky for investors.
They’re right – but it also means healthcare is a stock-picker’s market… our specialty.
Align’s breakthrough Invisalign technology is second to none. It’s gaining ground because it allows young people to straighten their teeth without the stigma of braces.
Rule No. 3: Ride the Unstoppable Trends
Look for stocks in red-hot sectors – because they offer the best chance for life-changing gains.
At first glance, Align might seem to fail this test because, like I’ve been saying, healthcare is viewed as a poor bet at present. But the company’s advanced technology has created what will be a growth market for years to come.
After talking it over with some dentists, I believe Align can increase its market by 55% over the next three years alone.
It’s working on next-generation digital tech that features machine learning. And because of that technology, dentists will be able to tackle tougher cases in up to 4 million new patients.
Additionally, Align has set up strong barriers to entry. It has 678 global patents. It also has new products on the drawing board that will make it even easier for dentists to suggest their patients (and their parents) go with Invisalign.
Rule No. 4: Focus on Growth
Companies with the strongest growth rates almost always offer the highest stock returns.
Align couldn’t have timed its first-quarter earnings release better, even it wanted to. On the day Align said sales jumped 30%, the U.S. Commerce Department said GDP grew by a weak 0.7%, the slowest pace in three years.
The firm keeps adding new products that bring more growth. Just since 2008, it has unveiled at least 13 new products or systems.
In the March quarter, Invisalign shipments to teenagers grew 31.6% from the year-ago period. These are status-conscious patients who will post pictures of themselves with their lovely new smiles on social media, giving Align terrific word-of-mouth buzz to a huge audience.
Rule No. 5: Target Stocks That Can Double Your Money
This is where we look at Align’s earnings growth and see how long it will take to double profits. By doing that, we can figure out how long it should take for the stock to double.
How long it will take for us to see triple digits…
In the first quarter, net profits jumped by 71.2%. If we were to be extra cautious and project earnings growth of only about one-third that amount, we get a yearly run-rate of 24%
Now, let’s plug that into my Doubling Calculator. Divide the compound growth rate of 24 into the number 72 – and find that the stock could double right at three years from now.
Align opened today at $138.83 – giving it a market cap of $11.06 billion. It has operating margins of 23% and a return on equity of 20.6%.
This is a stock that you can count on for the long haul to get on the Road to Wealth… Paved by Tech.
And it’s in a subsector that will remain largely immune from whatever healthcare changes Washington might throw our way later this year.
That gives tech investors like you plenty to smile about.