Editor's Note: You're getting special access to Bill's Private Briefing today because this technology will change the way you encounter everyday life. It could change the way you invest, too...
Once I get my son Joey off to school each morning - meaning I can switch away from SpongeBob Squarepants or Scooby Doo - I'll put on CNBC as I get ready for my commute to the office.
You know the drill... I leave it on in the background and sort of half listen as I finish dressing. Invariably, a story or two will pique my interest, causing me to give it my full attention.
And yesterday, that story was 3D printing.
We Saw This One Coming
The North Huntingdon, Pa.-based 3D printer ExOne Inc. (Nasdaq: XONE) warned that full-year 2013 revenue would be in a range of $40 million to $42 million - down from earlier expectations of $48 million.
"Now that's interesting," I thought to myself.
You see, when we recommended the 3D printing sector to you back in July - describing it as one of those rare shots at a "ground-floor investment opportunity" - the one stock that Radical Technology Profits Editor Michael A. Robinson said to steer clear of was... ExOne.
During my July interview, Michael enthusiastically recommended 3D Systems Corp. (NYSE: DDD) and Organovo Holdings Inc. (NYSEMKT: ONVO). But he urged readers to take a wait-and-see approach with ExOne, saying the stock had just corrected.
The result: Organovo has gained as much as 117%, and is still up 86%; 3D Systems has risen as much as 93%, and is still up 77.6%.
But ExOne really hasn't done anything.
And then on Jan. 14, after the closing bell, the company issued its warning.
Investors punished the stock, sending the shares down 8% in by late afternoon. The shares are now down nearly 14%.
Michael was here for meetings while this was unfolding, so I had the chance to ask him firsthand for his thoughts on the sector.
"I still like this sector a lot for the long haul," he told me recently. "Obviously this downward guidance is going to weigh on the sector, and increase the risks in the near term. Investors who are looking to initiate new positions might want to break that first 'buy' up into several increments - say, a third, a third and a third."
In other words, if you missed this run the first time, but don't want to miss the long-term growth, figure out what your ideal position would be, and then break into three equal increments.
Buy the first third now, and then look to add to that position on pullbacks - or do so over a predetermined time frame (for instance, by purchasing the final two-thirds of that position in two equal installments - say, three months from now and six months from now).
And 3D Systems is probably your best bet.
"I like this approach, because of the volatility of the stock," Michael said. "So we're going to watch this and come back. The company is fundamentally strong. It's reinvesting its earnings in the business, which I like. And the long-term growth potential is huge... even massive."
A $10 Billion Winning Bet
Goldman Sachs Group Inc. (NYSE: GS) recently said that 3D printing is already a $2.2 billion market and will reach $10.8 billion by 2021.
Credit Suisse Group AG ADR (NYSE: CS) has an even more aggressive forecast for the sector, stating that sales will grow from about $3 billion today to $11 billion by 2020. Credit Suisse says 3D printing is already taking hold in the healthcare and aerospace sectors, and says each of these markets will race along at a 30% compound annual growth rate (CAGR).
But the real growth will come from the consumer market, the investment banking firm says.
"The consumer market is the fastest-growing portion of the 3D printing market, with expectations for 100%+ [year-over-year] growth in 2013," Credit Suisse analysts wrote in their recent report.
The report continued, "MakerBot [owned by Stratasys Ltd (Nasdaq: SSYS)] describes its offering as intended for the pro-sumer market, expecting many systems to be dual professional/personal use among small business owners or serious hobbyists. 3D Systems' 'Cube' is marketed by DDD as a true 'consumer' printer."
The Credit Suisse report was written before 3D Systems introduced a new 3D digital photo scanner called the "Sense," a product launch Michael and I wrote about in November.
The Sense is about the size of a smartphone, costs only $399, and can capture images as small as a cupcake or as large as a full human body. And once it captures that data, it turns it into a 3D-printable file in a matter of seconds.
The $400 "price point" makes it the first real 3D printing product aimed at the consumer market. The realization of that fact was a big reason 3D printing stocks went on their hot run of the past week or so. And that surge underscores the huge profit potential these companies offer - once it hits the mainstream consumer market.
But you may not want to wait for that to happen. Stocks, as you know, "discount" future growth, meaning the shares will accelerate before that consumer picture becomes completely clear.
And Wall Street may still be underestimating just how big this market could actually be - a fact that Credit Suisse analyst Julian Mitchell conceded in his recent missive.
"Our proprietary 3D penetration analysis suggests consensus sales growth forecasts could prove conservative," Mitchell wrote. "Most corporate guidance defaults to the assumptions of industry consultants who estimate that the 3D printing market will grow at approximately 20% annually."
No Waiting: This Sector Will Outperform
RBC Capital Markets started coverage on 3D Systems and Stratasys with "Outperform" ratings, and predicted the 3D printing industry will post a 24% compound annual growth rate from 2013 to 2021.
The firm likes 3D Systems' end-to-end product line, smart acquisitions and margin-expansion potential, and also likes Stratasys' 3D-printed parts business (RedEye) and dominant additive manufacturing position, as well as MakerBot.