by Alexander Green, Chief Investment Strategist, The Oxford Club
Tuesday, December 11, 2012: Issue #1923
Remember what your physics teacher taught you in high-school physics?
Me neither. But I do recall anyway that an object in motion tends to remain in motion.
A stock is not a physical object dealing with force and friction, of course. But history shows that earnings at public companies can get into a positive long-term trend that is highly profitable to shareholders. That’s why the best companies to trade for short-term profits are generally the ones that are already in motion. The company has found a profitable niche and is working it for all it’s worth. (Good recent examples are Apple, Google and Amazon.) If a high-flyer loses its mojo – think Research In Motion or Yahoo! – it can be very tough to get it back.
This is why short-term traders shouldn’t generally buy a falling stock (especially when the broad market is rising). It also underscores the importance of a) identifying stocks that are moving up based on sound and growing fundamentals, b) buying them without delay and c) running a trailing stop. That way when the momentum ends – as it does for all stocks eventually – your profits are protected.
Take 3D Systems (NYSE: DDD), for example. Despite the storms that have coursed through the market over the past several weeks, the stock has almost tripled this year and is only a stone’s throw from a fresh 52-week high.
There are good reasons for this. Based in Rock Hill, SC, 3D is the world leader in 3D print solutions. It manufactures and sells 3D printers and print materials for both consumers and corporations.
Of course, most investors aren’t even familiar with 3D printing yet. If you’re one of them, you’ll be surprised to find it has very little to do with paper.
3D printers are machines that make a variety of objects using a laser or extruder that moves along an X, Y and Z axis to build objects in three dimensions, layer by layer, sometimes only microns thick at a time. In other words, they “print” objects, including everything from machine parts to artificial limbs. The military uses 3D printers to resupply parts for fighter jets aboard carriers and in the combat theatre. NASA is buying them for space missions. TV personality Jay Leno uses them to make custom and hard-to-find parts from scratch for his collection of classic cars.
What’s the advantage of 3D printing? This method eliminates a lot of waste. Leftover materials can be immediately used on another project, alleviating the need for injection molding, setup costs, cutting, sanding, drilling and having scraps of material left over, as is the case with traditional manufacturing methods. But the most impressive part is unlimited customization without having to worry about economies of scale. If you don’t like a feature of a the part or object you are creating, you simply tweak the CAD drawing to include your improvement and print another.
3D’s printers reduce the time and cost of designing new products or creating custom replacement parts. And while the industry is still in its infancy, sales are already growing sharply.
In the most recent quarter, earnings at 3D soared 87% on a 57% increase in sales. Operating margins are 19%. And management is earning a respectable 11% return on equity.
Will this momentum continue? It sure looks like it. Notice that consensus earnings estimates for this quarter, next quarter and next year have all been rising over the last 60 days.
As this industry takes off, earnings should only accelerate from there. That’s why this stock has held up so well in the recent downdraft. And why it should continue to move higher in 2013.
P.S. There are a select number of other technology stocks poised to deliver dramatic gains in 2013. For a special report detailing one of these unique opportunities, click here.
3D Systems: Can You Print Money With This Stock?,