My Favorite Stock
Today we’re going to start off with something a little different. Those of you who are also subscribers to Cabot Wealth Advisory know that each week, we produce a video that summarizes the market’s action and highlights a few stocks. I’ve been watching those videos and this week, decided to...
Today we’re going to start off with something a little different. Those of you who are also subscribers to Cabot Wealth Advisory know that each week, we produce a video that summarizes the market’s action and highlights a few stocks. I’ve been watching those videos and this week, decided to bring you one of my very own. It’s on a very special topic ... my favorite stock! Click here to watch it and let me know what you think by replying to this email. Enjoy!
Every schoolchild in America is taught about Henry Ford, and about how he used assembly line manufacturing to make the first cars average Americans could afford. Of course, the full story is somewhat more complicated than that: Ford wasn’t the first company to use assembly line manufacturing, and Henry Ford didn’t come up with the idea all by himself. Ransom Olds was actually using assembly line techniques at the Olds Motor Vehicle Company factory as early as 1901, years before they were introduced at Ford. And the “disassembly lines” common in slaughterhouses—where a carcass was moved, on a conveyor, from worker to worker—actually helped inspire Ford’s assembly lines after one of the company’s officers visited Chicago.
Nevertheless, Ford—the man and the company—are rightly remembered for “perfecting” the assembly line. Ford’s Model T assembly line maximized efficiency to an extent that is still impressive. Ford also applied its manufacturing advancements in such a way that it changed the world dramatically, by making a car that ordinary workers could afford. As Ford Motor Company officer and executive Charles E. Sorensen wrote in his memoir, “Henry Ford is generally regarded as the father of mass production. He was not. He was the sponsor of it.”
Ford is remembered as the father of assembly line manufacturing because of how hard the company pushed to improve efficiency. He also strove to improve the lives and buying power of his assembly workers, by offering them the “Five Dollar Day,” considered an exorbitant sum at the time. The generous wage instilled greater loyalty and productivity among his employees. Indeed, each step of the Model T’s assembly was examined for ways to make it faster or cheaper: below is a 1913 photo of an experimental setup for testing a new method of attaching the Model T’s body to its chassis. (This method was never used on the actual assembly line, where the body was lowered onto the chassis by an overhead crane.)
Another example of the company’s dedication to efficiency is exemplified by Henry Ford’s famous quip: “Any customer can have a car painted any color that he wants so long as it is black.”
In reality, the Model T was produced in a variety of colors both before 1914 and after 1926. In fact, before 1914, the Model T was not available in black, but only in gray, green, blue and red. However, in 1914, the assembly line production process had sped up to the point that production was actually being held back by waiting for the paint on the cars to dry. So, to cut drying time, Ford switched to a single variety of quick-drying lacquer, called japan black. Made with asphalt, japan black dried significantly quicker than any other automobile paints then available. In 1914, the Ford factory could produce a complete automobile in 93 minutes; a black Model T was rolling off the assembly line every three minutes.
Model Ts again became available in a range of colors in 1926 after the DuPont Company introduced Duco Lacquer, a fast-drying automobile lacquer that came in multiple colors.
There have been other manufacturing system advances since Ford perfected the assembly line. Prefabrication changed how houses and other buildings are built, and Sears Catalog Homes (available between 1908 and 1940) can be credited with doing for the real estate market what the Model T did for the automobile market. Just-in-time manufacturing (also called the Toyota Production System, tellingly) and mass customization are more recent, if smaller, advances.
And today, we’re seeing another technology emerge that could do as much for manufactured goods as Ford’s assembly lines did for automobiles. That technology is called 3-D printing.
If you don’t know much about 3-D printing, it sounds kind of futuristic, like something from a science fiction movie. How can you print things in 3-D? But 3-D printing is already a very real technology, being used to manufacture all kinds of goods, as well as for rapid prototyping and other applications. In fact, I have something in my house that was 3-D printed (admittedly by a friend who worked with 3-D printers):
My thing happens to be cube-shaped, but 3-D printers can print anything, including ball-and-socket joints for replacement hips.
There are several different types of 3-D printers, but they all work by building an object (that has been modeled on a computer) layer-by-layer, from the ground up. The cube above was made on a 3-D printer that uses an inkjet system to print the layers in plaster dust. This printer creates the layers by depositing a colored liquid onto a very thin layer of plaster. Wherever the liquid is deposited, the plaster solidifies. So the first layer of the cube above would look something like this:
After that layer is printed, a second very thin layer of plaster is deposited on top of it. The second layer of the shape is printed in that plaster. Then a third layer of plaster is deposited, and then the third layer is printed, and so on and so forth.
At the end, you have a stack of hundreds or thousands of layers of plaster dust. Inside all that dust is the shape you printed. When the dust is blown away, the places that have had ink deposited on them stick together, and to the printed shapes above and below them. In this process, the final object is covered in epoxy to make it stronger. The result is the cube above!
Other 3-D printing technologies may deposit liquid on resin, or sinter layers of metal or plastic together with a laser. Still others simply deposit layers of melted plastic or metal in the given shape.
Whatever the specific technology that is used, 3-D printing is breaking new ground among manufacturing processes for its speed and flexibility. An engineer designing a new product can create a 3-D model and have a working prototype within hours. 3-D printing can also create very complex shapes, like the ball and socket joint I mentioned above. And while the equipment is still fairly expensive, 3-D printing has the potential to be an incredibly low-cost manufacturing process once it’s sufficiently commercialized. Someday, we may all have 3-D printers sitting next to our 2D ones.
So, how can you invest in this trend? Well, it just so happens that two 3-D printing companies were recommended in the Dick Davis Investment Digest just last week, by Nick Hodge, editor of Alternative Energy Speculator. As its name implies, the publication is one of our more speculative contributors, and the two companies Hodge recommended are, likewise, on the riskier side. Both have lost a significant amount of ground recently, just after one reported an earnings miss. But, if you have patience, and a certain amount of risk tolerance, you may be interested in these pure plays on the 3-D printing industry. Hodge recommends buying here to take advantage of the discount, but remember: bottom fishing is a dangerous sport. If you know what you’re doing, go for it. If buying companies significantly off their highs is not part of your investing system, wait for one or both of these stocks to demonstrate a strong recovery first. Here’s what Hodge wrote:
“The industry grew 24% in 2010 to revenue of $1.325 billion. The compounded annual growth rate for the industry since it began in the mid-1980s is 26.2%. As we head into the future, this technology is what will allow major advancements to be made in multiple industries. It’s pure picks and shovels for the modern age. 3-D design and printing can help engineers simultaneously evaluate the performance of different materials at the same time—from literally printing replacement organs to seeing which metal alloy performs best in a plane’s landing gear. That report also said the industry will hit $5.2 billion by 2020, conservatively. That implies growth of nearly 300% in the next eight years. So let’s stake our claim now. We’re going to buy two of the leaders in the industry at discount thanks to a recent earnings miss. Let’s buy Stratasys, Inc. (Nasdaq: SSYS) under $27.00. And let’s also buy 3-D Systems Corp. (NYSE: DDD) below $23.00.”
Wishing you success in your investing and beyond,