We’re coming up on the one-year anniversary of what at the time seemed like a controversial call.
But it turned out to be very profitable.
See, back on July 26, 2019, I suggested you invest in a breakout stock that had just gotten slaughtered.
My column appeared the very day after the company I have in mind lost more than 25% of its value – in a single session.
Despite that drubbing, I struck a very confident tone. How could I be so sure of a strong return?
Fair question. Simple answer. The company has a long track record of excellent earnings growth.
And those kinds of stocks very often not only weather setbacks but go on to become market leaders once again. This medical device leader rallied back by 40% in just five months.
Now then, many folks would find investing in dentistry to be about as exciting as watching Aunt Millie knit a sweater. But if it means doubling your money in just 10 weeks, I’d say it’s a pretty darn thrilling proposition.
So let’s take a look at 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 almost impossible to spot.
Patients wear these braces as much as possible, and every few weeks get a new one made to push their teeth further into alignment.
As you can imagine, an invisible alternative to dental braces appeals to a whole lot of people, young and old. This is why the number of Invisalign cases shipped grew by 13.1% this last quarter.
Every dentist and orthodontist that provides Invisalign must be trained and certified by Align, another source of revenue.
The other part of Align’s business is making the iTero scanner, a 3D scanner used by dentists, orthodontists, and oral surgeons. This scanner accurately checks teeth for all kinds of dental procedures, restorative work, oral surgeries, as well as fitting Invisalign.
This division of the company also provides software for dentist use for record-keeping, tooth restoration, and so on.
In short, Align helps fill the need for dental work better than the competition. And the dentistry market is under no risk of going away, so it’s an exciting niche to be in.
To see how good Align’s investment case is, let’s run it through 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.
Align’s CEO since 2015, Joe Hogan, is a seasoned leader of technology and healthcare companies. Before Align, Hogan was CEO if ABB, the Swiss-Swedish power and automation juggernaut worth $40 billion, where he increased revenues by 25% over five years.
Hogan was also CEO of GE Healthcare for eight years, doubling revenues by pushing the company into new regions – exactly what he’s now having Align do.
Align has 988 patents and a strong market position with over 8.3 million Invisalign patients. Boasting an 81% return on equity and $355 million in free cash flow, Align is a well-oiled money-making machine.
Tech Wealth Rule No. 2: Separate the Signal From the Noise
To create real wealth, you have to ignore not just hype from the company but the noise you often hear on Wall Street.
Wall Street traders don’t do things in moderation. When they like a stock, they over-hype it. When they sour on it, they dump it as if it was on fire. Soon after, these stocks tend to return to more reasonable prices.
That’s exactly what happened on July 25, 2019, when Align announced it’s second-quarter earnings. Profits per share were up a whopping 40%, but the company lowered its guidance for the next quarter. Wall Street’s noise said to sell, and the stock dropped by 25%.
But the real signal here was the huge increase in profits per share, as well as Align’s clear goals for growth, so I recommended you buy the stock. And it’s a good thing I did, as Align rose almost 40% in just 30 days.
This year, Align’s share price fell during the COVID crash and bottomed out on March 19. But it’s since jumped up over 85%, and hit a recent peak on June 8. In the same time period, the S&P 500 is up less than 30% – about a third as much as Align.
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 puts the company squarely in the middle of the huge aesthetic medicine market, which will grow from $52.5 billion in 2018 to $103.4 billion in 2026 according to Grand View Research.
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 smile, hair, and skin to their liking.
Align is perfectly in tune with that generation. For example, the company uses social media to market and currently has more than 8 million fans across different platforms.
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 well set up to keep growing.
In fact, over the past three years, the firm has grown sales by an average of 24%. That’s nearly 10 times the average U.S. GDP growth over the last decade.
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 have grown by 14% on average.
But I expect to see that figure climb to 20% by early next year.
See, COVID has put a short-term dent in dental sales across the board, especially in Asia. I expect the rebound for Align will be quick.
Now we use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound growth rate of 20 into the number 72.
We find that it should take roughly 3.5 years for Align to give us 100% gains.
In other words, ALGN can put a smile on your face – and plenty of green in your wallet.
In fact, ALGN is part of an entire massive trend of biotech innovations that are transforming nearly every single aspect of medicine in our society. This one pick is just the tip of the iceberg.
You can click here to check out some of the research I’ve done into the companies that could make an outrageous return in the race to solve society’s most pressing medical challenge, creating a vaccine against COVID-19.
And then, make sure to stay tuned, because I’ll be keeping you posted on all the latest and most pressing breakthroughs in biotech investing as they happen.
Cheers and good investing,
Michael A. Robinson