Backing a Bullish Bet on 3D Printing

Last week was a positive one for U.S. markets with the Dow Jones up 0.94% and the S&P 500 climbing 0.51%. Global markets, however, continued their recent pullback, with the MCSI Emerging Markets Index down 3.10%.

Big gainers in your Bull Market Alert portfolio included WellPoint, Inc. (WLP), which jumped 2.25%, and Trina Solar Limited (TSL), which gained 2.61%. Wellpoint also rose back above its 50-day moving average and is now back to a BUY.

You were stopped out of two positions on the market’s sharp sell-off last Thursday. With Geotherm (THRM), you booked just over 20% gains in the stock. MercadoLibre (MELI) also got caught up in the emerging market sell-off and you sold at a loss.

This week’s Bull Market Alert revisits a previously profitable bet on the 3D printing revolution, Stratasys (SSYS).

Stratasys is a Minneapolis-based maker of additive manufacturing machines for prototyping and producing plastic parts and market leader in the red hot “3D printing” space. Thanks to a recent acquisition of MakerBot, Stratasys is also the largest 3D printer company by number of units installed.

As you may recall, “3D printing” allows you to design something on your computer using three-dimensional software and the “printer” actually manufactures it for you right then and there. By eliminating machining or tooling costs for manufacturing tools, 3D printing allows the creation of custom parts that match an original design or design changes in just a few hours, shaving weeks — sometimes months — off of the production process.

Last Thursday, Stratasys affirmed the continued strength of the 3D printer market when it posted better-than-expected Q3 earnings and raised its guidance for the year.

The 3D printer maker reported revenue of $126.1 million, up 39%, beating analyst estimates of $117 million. The revenue total included $11.6 million from recently acquired MakerBot. Without MakerBot, revenues rose 26%. Earnings per share rose 10% to 45 cents, 3 cents above consensus estimates.

Stratasys also raised its revenue guidance for 2013 to $470-$490 million from $455-$480 million. That outlook implies Q4 revenue of $139 million-$159 million, essentially doubling the company’s Q4 revenue from a year earlier.

Stratasys’ recent results should quell any concerns that momentum in the 3D printing space is slowing. On the contrary, demand for 3D printers and 3D printing services may be about to hit a tipping point and begin to accelerate exponentially. Overall, the 3D printing industry remains one of the best secular growth stories in investing, growing at 20-25% over the next several years.

So buy Stratasys, Inc. (SSYS) at market today, and place your stop at $103. For even bigger potential gains, I recommend the March $120 calls (SSYS140322C00120000).

Portfolio Update

Bank of Ireland (IRE) gained 0.93% last week. IRE’s recent restructuring and cost-cutting plans have generated significant results as the bank rebuilt its required-capital ratio to a level well above minimum regulation standards. The Irish government also firmly believes Ireland will be fundamentally free of its bailout obligations by the end of the year. IRE has held up remarkably well during the recent sell-off, and remains a BUY.

WellPoint, Inc. (WLP) rose 2.25%. Healthcare insurance providers such as WLP closely watch a metric referred to as medical loss ratio (MLR). This figure reflects how much a provider spends on patients as compared to collected insurance premiums. WLP is maintaining a healthy 84.9% ratio, as mandated by Obamacare regulations. Trading above its 50-day moving average (MA), it is now a BUY.

Google Inc. (GOOG) dipped 1.07%. Facebook has been successful at monetizing its one billion current active user accounts. Although Apple has no significant social media effort, its collection of roughly 600 million iTunes accounts has certainly proven to be a richly profitable base of users. Enter Google, which launched its own “Google+” social media effort in June of 2011, and now reports a whopping 540 million users. Google has been busy as of late tying all of its vast ecosystem’s offerings to its Google+ accounts, using the Google+ account as the single centralized “key to Google’s kingdom.” This gives Google the unique ability to offer both Facebook and Apple users a robust social media experience, combined with a rich and diverse iTunes-like “Play Store” offering, as well as its industry-leading Android operating system and support for diverse third-party mobile hardware — decorated lavishly with Google’s well-placed advertising. GOOG is a BUY.

AutoNation (AN) fell 2.71% over the past five trading days. AutoNation announced last Monday that its October 2013 new vehicle sales increased 9% year-over-year. This was its highest October sales figure since 2007. Closing out last week directly on the 200-day moving average, and very seriously oversold, AN is due for a big bounce. AN is a HOLD.

iShares MSCI Spain Capped Index (EWP) gave back 1.68%. The European Central Bank (ECB) issued a surprise 0.25% interest rate cut last Friday, launching European markets higher on the news. This rate cut should give businesses access to cheaper financing, consumers a break on some of their debt service payments and investors more confidence to invest in Spain’s recovery. EWP is a BUY.

Trina Solar Limited (TSL) gained 2.61% last week. As TSL’s earnings report approaches, management issued positive guidance on future shipments last week. It also expects gross margins to jump from 3%-4% up to 14.5%-15.5%. TSL will report earnings on Nov. 19, before markets open. TSL is a BUY.

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