In our day-to-day work as investment managers we read a lot of stock analysis from various sources. Much of our time is spent reading up on the IAS
stocks we follow. We also spend a good deal of time prospecting for new ideas. Sometimes when we go out prospecting we wind up running across names we’re already familiar with. For example, in the June 15th
issue of the venerable Value Line Investment Survey, we came across a feature article on Align Technology (Ticker: ALGN). Meanwhile, we’ve recently been watching ALGN rise in the ranks of the Investor’s Business Daily (IBD) top 50, recently coming in at #9. This mid-cap stock is starting to develop a nice, broad following.
Well as they say in broadcasting, “You heard it here first.” We introduced ALGN to the IAS one year ago at $23.52. The provider of high-margin, differentiated clear orthodontic systems had endured a period of relatively low-growth, but we suggested investors look ahead to the future. Our bullish call turned out to be a little early, but with shares up 50% since our August feature, things are working out nicely for investors now.
August 2011 was an ugly month for investors. The S&P 500 fell nearly 20% from its late-July highs. ALGN shares performed modestly worse in August, and frustratingly, kept sliding in September and October. The financial results reported in the company’s first quarter as an IAS stock looked a little weak on the surface, but we wrote that the company’s underlying performance was stronger than the headlines indicated. By November, with the broader market starting to firm, investors suddenly became much more bullish on the stock. Align shares jumped more than 30% the day the company reported its Fiscal Q3 financial results, putting them about back where we had originally recommended them in August.
Since then, sales and earnings have continued to improve pretty consistentlu, and shares have marched up another 40% during a span where the broader market has been about flat. As noted above, other publications have started to take notice. A word of warning, however: Recently trading above $30, shares are currently well above our buy range. We’d be a little nervous initiating a new position at the price where Value Line and IBD find the stock so attractive. Admittedly, we were a little early. The competition may turn out to be a little late. We’d certainly be looking for a pullback from these levels.
Readers who follow other investment publications besides the IAS may notice a tendency for the same stocks to pop up on multiple services’ radars at about the same time. We’re not the only analysts out there hunting for fairly-valued growth companies. If the typical investment newsletter follows maybe 25 to 100 companies, there’s going to be overlap between publications. At the IAS, we think we have some advantages over the competition. We tend to be a little earlier with our picks than other analysts are. This can be advantageous because it gives readers a chance to follow a company for a few months before initiating a position. Being early can be a disadvantage sometimes. When we recommend a stock which has suffered a severe decline, it’s rare that we’re able to pick the absolute bottom. At the IAS, we always say that our job is to present investors with new ideas, not necessarily to tell them what to buy or sell or to create entire portfolios for them. When it’s fresh ideas you’re after, being early is better than being late.
Disclaimer: This company was selected for review in part because of its performance over the past year. Any outperformance relative to the broader market is not necessarily indicative of performance of the broader Investor Advisory Service.