Editor’s Note: Before you read today’s column, I wanted to send you a quick note about some groundbreaking research I’m working on. It has to do with a California mandate set to affect the entire state’s population by the end of the year. Probably the entire U.S. population shortly after. I’ll send you notes about my progress here and there, and I expect to be finished within the next few weeks. You’ll hear all about it. I just want to make sure you’re following along now – the company I’m uncovering to play this situation could be on the receiving end of a ton of spending the few weeks before the year is out. Stay tuned!
I sure hope you took the advice I gave you back on July 26. You’d be laughing all the way to the bank by now.
But even if you didn’t have a chance to read it, today I’m going to show you why there’s so much upside for this company ahead.
Back then, my column about a breakout medtech leader appeared the very day after the stock dropped by 25% on heavy volume.
That’s the kind of decline that makes most investors very nervous.
But we’re not most investors. We know how to pounce on an undervalued stock and make more money by turning Wall Street’s anxiety attack into our long-term profits.
And that’s why I never lost faith in this company. It’s one I have followed for years and it’s nothing short of a profit powerhouse.
In fact, I actually got excited to see that we could scoop up shares of Align Technology Inc. (ALGN) at deep discount.
So, I’m happy to report that Align rocked the market last month – gaining more than 39% in just 30 days.
An Invisible Opportunity
Now then, it’s stocks just like Align that led me to develop Rule No. 2 of my five-part system for finding market-crushing tech plays. That rule states that you should “separate the signal from the noise.”
Here’s the thing. Wall Street has a tendency to over hype many stocks and then turn around and over sell others. It’s all about the Street’s penchant for putting way too much emphasis on a single quarter.
Ever since this amazing bull market began back in March 2009, we have repeatedly seen Wall Street dump great stocks at fire sale prices on the thinnest of excuses.
Earlier this very year, Amazon.com Inc. (AMZN) missed its second-quarter earnings forecast by a miniscule 1%. The stock immediately came under selling pressure and lost over 10% of its total value, even though, as I just pointed out last week, it’s still a growth play with excellent prospects.
And that’s also exactly what happened with Align. When it announced second-quarter earnings on July 25, the firm said per share profits were up from the year-ago quarter by a stunning 40%.
However, it stole some of its own thunder by guiding a bit lower for the third quarter. And when it announced third-quarter earnings on Oct. 23, pe- share earnings were up a scant 4%.
It’s a pretty great example of how you can’t succeed in the market by just following the most obvious signals out there. Sometimes, when you really want to maximize your gains, you need an expert with a sophisticated strategy in your corner. That’s where my friend, Andrew Keene, comes in.
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In the meantime, Align is also looking to transform its own financial outlook just as quickly.
The firm now expects that modest 4% per-share earnings increase from the third-quarter to more than double in the current quarter. It’s also projecting a bright 2020. Given its great long-term track record, I have to agree.
You may recall that this is a play on breakthrough orthodontics, a key part of a market that is doubling every nine years, and that will soon be worth $2.6 billion.
Align is heavily focused on its Invisalign braces. As the term implies, these are not the metal wireworks that can make people feel embarrassed when they smile.
Instead, they are clear mouth guards you wear most of the day. It’s a great solution for adults who are concerned about maintaining a professional image.
But it’s not just adults who are opting for this nearly invisible way to correct crooked teeth. Teens around the U.S. are jumping on board as a great way to avoid the embarrassment that can come with wearing braces.
When we spoke back on July 26, I noted that I wished my daughters had the option a few years back when they needed orthodontics.
Just the other day I was going through the family photos on my iPad. I came across a pic I have of my older daughter, Jordan, with a big, beaming smile they day she got her braces off.
That one photo showed me why Align is doing so well. Backed by more than 450 patents, the Invisalign system has so far transformed the smiles of six million people in the U.S.
A Crystal-Clear Outlook
Now you know why I keep saying that, with Align, it really pays to focus on the long haul. Yes, earnings are a little weaker right now than I would like to see.
But this is pretty much par for the course with growth stocks. Those firms never go up in a straight, unbroken line, which is why I like to scoop up oversold stocks like Align on the cheap.
And talk about a recent market crusher. It’s performance in October was nothing short of amazing.
Indeed, Investor’s Business Daily recently listed Align as the best-performing growth stock for the month, with an increase of nearly 39.5%.
Had you bought the stock when we spoke on July 26, you’d be sitting on profits of nearly 33% because we bought in shortly before it bottomed out.
By contrast, the S&P 500 is up just 2.9%. That means we crushed the broad market by 1,037%.
But don’t worry, I still see plenty of upside ahead. After all, with a focus on 10 million young people, Align sees a target rich opportunity.
Last year, Align shipped roughly 1.2 million Invisalign systems. That was a 32% increase from the year before. Sales of the clear aligners themselves without the related machines came in at $1.7 billion, a yearly gain of 29.2%.
Meantime, the rest of the world is calling. In its early days, Align kept close to home. But it is growing overseas sales, and shipments to the category were up 45% last year.
Over the past three years, it has grown its per-share profits by 36%. That means they are doubling on average every 18 months.
If we cut that in half to 22% to be conservative, that would still give us a double in just a little over three years.
Add it all up, and you can see why I recommended this stock when so many others hit the panic button.
It proves what I’ve been saying for years now – the road to wealth is paved with tech.
Cheers and good investing,
Michael A. Robinson