Let’s be honest. No one likes going to the dentist, but for investors, those routine check-ups present an opportunity for information-gathering on dental stocks, an oft overlooked but potentially potent segment of the healthcare sector.
Dental stocks and the broader industry offer investors steady growth. Over the past six years, the industry grew at a compound annual growth rate (CAGR) of 1.4 percent, and that’s after allotting for an expected 1.5 percent decline this year due to the novel coronavirus pandemic. And even with the ill effects of Covid-19, the U.S. dental industry is forecast to generate nearly $138 billion in revenue this year.
Interestingly, Covid-19 could provide a runway for growth for dental stocks as soon as next year, assuming a vaccine comes to market or case counts and fatalities decline. The reason being that, as the American College of Surgeons points out, elective procedures have presently been put off.
In the wake of the coronavirus lockdowns, there are burdensome state guidelines surrounding those procedures making it unappealing for healthcare providers and patients. That applies to dentistry, too.
In preparation of patients getting back to normal dental visits next year, investors may want to consider some of the following dental stocks.
- SmileDirectClub (NASDAQ:SDC)
- Align Technology (NASDAQ:ALGN)
- 3D Systems (NYSE:DDD)
- Straumann Group (OTCMKTS:SAUHY)
- Johnson & Johnson (NYSE:JNJ)
SmileDirectClub manufactures aligners, impression kits, whitening gels and retainers, putting it firmly on the cosmetic side of the dentistry business. In an ordinary operating environment, makers of dental aligners should be decent bets because these products are often viewed as cost-effective alternatives to traditional braces.
However, SDC’s status as a provider of products that reside on the elective side presented risks to investors as the coronavirus hit the U.S. Teeth whitening products are certainly optional, and in a fragile economy with high unemployment and families looking to cut spending, even aligners and retainers can justifiably be put off. That much was seen when SDC stock slid from around $15 in February to below $4 in March.
There’s also some headline risk here, as SmileDirectClub is suing Delta Dental Plans Association, Delta Dental of Illinois Foundation and Delta Dental of California, alleging the insurer acted in bad faith by denying customers teledentistry benefits.
California, the largest state economy, is increasingly hostile territory for SmileDirectClub as a legislator there has twice targeted the company, but SDC isn’t a stranger to fighting in the courts and the stock is up almost 60% over the past 90 days, indicating markets aren’t afraid of potential legal risk with this dental stock.
Align Technology (ALGN)
Align Technology is a bigger rival of the aforementioned SmileDirectClub so investors interested in this area of the dental market don’t need to own both of these names. Headline risk is lower with Align than it is with its smaller competitor, but ALGN stock faces the same macropressures at the hands of the coronavirus.
Over the long-term, Align will continue stealing market share from traditional orthodontics equipment, but second-quarter results underscore the Covid-19 risks, as Align reported a loss of 35 cents a share, far worse than four-cent loss Wall Street expected. Like so many companies across so many industries, Align didn’t offer up any guidance for the remainder of 2020.
Having more than doubled since March, Align is now stretched on valuation. That’s one challenge, but a smaller one than whether patients will feel safe returning to dentists and orthodontists any time soon.
Assuming progress on a coronavirus vaccine continues and one comes to market in the coming months, 2021 could be a solid year for ALGN stock, but investors should wait for a deeper pullback in this name.
3D Systems (DDD)
It’s been awhile since 3D printing stocks got some love. 3D Systems is enduring struggles of its own, having shed almost a quarter of its value, but that decline could be a signaling opportunity for risk-tolerant investors looking for dental exposure. 3D Systems’ customers hail from multiple industries, but the company is a credible dental player.
“3D Systems offers a broad range of clinically validated technologies and materials that allow dental labs to access advanced digital workflows, driving speed, efficiency and precision of a range of indications delivered to patients,” according to the company.
As is the case with Align and SmileDirectClub, DDD’s dental business is being hamstrung by the coronavirus. That is to say, dental offices need to be open and seeing patients to make use of 3D-printed dentures, implants and prosthodontics.
That being said, the long-term outlook is bright. The market for 3D printing and healthcare is booming and dental services is a major part of that growth. CAGR for the 3D printing dental market could top 23% over the next several years.
Straumann Group (SAUHY)
Don’t be deceived by Straumann Group trading over the counter in the U.S. That’s a tactic used by many large European companies and the Swiss dental device maker fits that bill with a market capitalization of $14.58 billion.
According to Bloomberg, Straumann “manufactures metal devices implantable in the jaw, in place of missing teeth, to which prosthetic teeth are attached.” In non-dental speak, patients that need this company’s products are likely in some form of pain and are being treated by a periodontist or oral surgeon, not a standard dentist. That puts Straumann in higher margin arena than say, makers of cosmetic dentistry products.
That said, Straumann has some exposure to the aligner market via the recent acquisition of Germany’s Dr. Smile, which serves as bolt-on deal for a growing aligner business in markets such as the U.S., Brazil and Europe. Asia-Pacific and North America combine for close to 40% of the company’s revenue.
Straumann isn’t the most glamorous dental stock, but the implants market — its bread and butter — is forecast to deliver a CAGR of 6% over the next several years.
Johnson & Johnson (JNJ)
Johnson & Johnson isn’t a dedicated dental company, far from it. But it’s the safest bet of the names mentioned here and additionally has ample exposure to the coronavirus vaccine competition for investors looking for a lower volatility play on that theme.
The bulk of JNJ’s dental exposure is derived through the company’s consumer products unit, a steady, but slow-growing part of the company’s business model. Over the past several years that unit, which includes over-the-counter medications like Tylenol and baby and beauty products, has driven a rough average of $14 billion in annual sales. The dental side of that equation is mostly attributable to floss and Listerine mouth wash. Listerine is the dominant mouth wash brand in terms of annual sales and it’s not even close.
Bottom line: JNJ is a play on dental over-the-counter retail. In more exciting news, the company is a steady dividend grower (currently yielding 2.73%) and its Covid-19 vaccine could be ready to go late this year or in early 2021 with the possibility of 1 billion doses to be delivered next year.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.