The healthcare market is one of the strongest areas in the American
economy. U.S. healthcare system costs have doubled over the past
ten years. And I think they will double again in another 10 years.
And we know why it's increasing: the great population boom of the
post WW2 era is now resulting in a retirement boom. But it's also a
hip replacement boom. And a cardiac surgery boom.
But it's a healthcare boom as much as anything else. Some folks
might decry this situation and point to rising health care spending
in a debt laden country as proof that the sky is falling or the end
of America is coming.
And you might hear from the mainstream media that this boom will
bankrupt our country - it's the whole 'entitlement spending must be
reigned in' argument. This might be the case, some day.
But for the foreseeable future it is more likely that health care
spending is sustainable and that related investments are a secure
and stable place to park cash, while generating healthy long-term
Today, I'm going to present to you with a healthcare stock that is
in the sweet spot of industry growth and opportunity.
If you buy this stock today, you're hitching your wagon to one of
the few remaining growth areas in the American economy. It's a
trend that shows no signs of slowing. Regardless of what President
Obama does, or what the next President signs into law, healthcare
costs are likely to continue growing.
One very specialized sector of health care is particularly
According to the American Association of Orthodontists almost 80
percent of all American teenagers and 1 million adults wear braces
at any given time. Straight teeth with a big beautiful smile is as
"American" as it gets. But, thankfully, a lot has changed in the
last 120 years since the specialty of orthodontics was founded in
In the past, correcting teeth required wearing metal braces and
rubber bands. I think I feared getting braces more than cavities
during dentist appointments growing up.
Braces were uncomfortable and embarrassing. They were decidedly not
This was the case for both teenagers and for adults. Adults who
wanted to correct their teeth and had no other alternative to
wearing uncomfortable and unsightly metal braces.
Fortunately for the image conscious - which is just about every one
of us - fifteen years ago a company by the name of
Align Technology (Nasdaq: ALGN)
came up with a product appropriately named 'Invisalign'.
Now with a $1.5 million market capitalization, the Santa Clara,
California medical device company is thriving. Align's main
product, Invisalign, caters to the teen and adult markets alike.
And its broad market has resulted in stable revenue growth over the
In fact, Align has managed to grow sales every year since 2006 and
even managed a 3 percent growth rate during the worst of the Great
Total revenue rose an impressive 16.4 percent to $104.9 million in
the first quarter thanks to an increasing patient population. But
the numbers of new patients this year should pale in comparison
when Align brings Invisalign to mainland China.
"This is a significant milestone and we are very excited about the
opportunity and growth potential for Invisalign in China," said
Richard Twomey, Align's vice president of international, in a press
"With rising income levels, increased spending on discretionary
items such as high-end luxury goods, and heightened focus on health
and aesthetics, China is poised to be one of the fastest-growing
markets for orthodontics in the foreseeable future."
Over the past decade, the Chinese orthodontic market has grown
steadily as the importance of dental health and personal appearance
has increased among the general population of 1.4 billion. Today,
China is estimated to have nearly half a million new orthodontic
case starts each year, with a higher percentage of complex class II
and III malocclusion cases than in Western countries.
Most orthodontic treatment is done within government-owned
hospitals in major metropolitan cities; however, rising consumer
demand has led to accelerated growth of private dental clinics,
according to Align. China represents a huge growth opportunity for
Align, but the stock does not have the huge risk carried by many
"With over 1.3 million patients treated worldwide, Invisalign is a
cutting-edge treatment technology that has been used by many
doctors to treat a very broad range of malocclusion," said Yanheng
Zhou, chair of the orthodontics department at Peking University
School of Stomatology. "The time is right for Invisalign in
Analysts agree with Yanheng Zhou, and have upwardly revised
earnings estimates for Align. Financial results for 2011 are
expected to show a 20% growth in sales to $455 million and an EPS
of $0.80. Next year, EPS is expected to grow 25% to $1.01 with
total sales of $514 million.
But Align is notorious for exceeding expectations and I suspect
they will again. At 20 times forward EPS, shares seem fairly
priced. But the company has shown the ability to expand during
recessions and the long-term impact from China will provide a
massive benefit to Align's business.
Both factors indicate an upbeat future, no matter what the economy
does, and should provide a tailwind for the stock this year.
Additionally, the healthcare sector, which has underperformed
against the market over the past two years, appears ready to regain
Shares are a fantastic buy below $20 and I expect them to rise to
$30 over the next year. Investors looking for an easy way to
straighten their portfolio need look no further than Align.