A lot of stocks don’t get into the headlines, but just because they aren’t an Apple Inc. (AAPL) or Facebook, Inc. (FB), it doesn’t mean they’re not good businesses. In fact, there are two dental businesses that are a great example of this.
Virtually everyone wants growth and the equity investing marketplace, which is mostly pooled money referred to as institutional, will pay for it, chase it, and trade it on a material corporate event that beats already-established expectations.
What’s transpired over the last several quarters are stocks going up even if a company only beats Wall Street consensus on one financial metric. It’s a bull market trait in a very accommodative monetary environment.
One company we’ve looked at before in these pages that’s proven to be a very good, long-term business is DENTSPLY International Inc. (XRAY).
This company is a well-established supplier to the dental market on a global basis. Amazingly, the company was founded in 1899. The business is what I view as consistent and recession-resistant.
DENTSPLY just beat Wall Street consensus with its third-quarter earnings, but it missed on the revenue estimate. In this market, however, beating consensus on one metric was enough for institutional investors to bid the shares significantly.
The stock actually began ticking higher as the broader market recovered from October’s sell-off. But the company’s earnings report was the catalyst for the position’s recent strength. The company’s short-term stock chart is featured below.
Chart courtesy of www.StockCharts.com
DENTSPLY pays a dividend, but it’s not the highest payout out there. The stock’s current yield is approximately 0.5%, which is modest. I think a mature enterprise like this should pay out more to shareholders. (See “Why I Like These Two Health Care Stocks.”)
But the stock’s recent price action certainly reflects the fervor that institutional investors have to bid “outperformance,” even if it’s with only one financial metric.
DENTSPLY is a solid, but slow-growth business with staying power in its industry. Wall Street earnings estimates have gone up for the fourth quarter, this calendar year, and next year.
This is the kind of recession-resistant enterprise that’s worth considering when the stock experiences a material price retrenchment. It’s a stock for the long-term investor. It’s the kind of position you don’t have to check on every day.
Sirona Dental Systems
Another interesting company serving the dental market is Sirona Dental Systems, Inc. (SIRO). This company was also founded more than a century ago and is a proven wealth creator for shareholders.
Selling dental appliances and equipment, it’s reasonable to expect approximately 10% in earnings growth per year. Revenues typically grow in the high single-digits annually.
Again, these aren’t the fast-growth businesses we all know about, but they are investment-grade equities that are more suited to conservative portfolios, where preservation of capital is an important goal.
There are lots of good businesses that are proven wealth creators that you don’t hear about in the media because they are unexciting. Very often, however, esoteric businesses turn out to be great stocks.