June Idea of the Month — Print me up, Scotty

By Travis Johnson, Stock Gumshoe, June 15, 2012

I should preface this by saying that though I tend to be gadget-happy and lust for the latest toys from tech-world … I still tend to think that many fabulou breathroughs are dumb ideas that will never catch on. After all, not everyone can be as silly as me, right?

I was convinced that putting cameras in cell phones was idiocy. And having a little machine that you carry with you so your boss can email you at any time, day or night, and the little box will ping you and force you to be available at all hours? That could obviously never catch on. Or after that, after we’d all gotten addicted to our little Blackberries, what on earth was the chance that a little touch screen device that didn’t even have a keyboard, which makes you misspell every other word, what were the odds that would beat out those handy little keyboards?

Except that everyone has a camera in their phone now. And Blackberries were even more ubiquitous five years ago than iPhones and their ilk are now. So I shouldn’t be trusted to pick the next hot technology that will take off, because even when I want one I think they’re foolish and destined to appeal only to nuts like me.

Thus it is today that we look at three-dee printing for our “Idea of the Month” fun. Why? Well, partly it’s because I think it would be really cool to have one but I think it’s patently absurd that any normal person would want one — that’s my contrarian side. And partly it’s because every newsletter and his brother is touting one or another of these picks, so I thought, now that we’ve seen a pullback in most of the companies, that now might be the time to see if we could get on board with one or another of them.

I should let you know, though, that it was a close call this month. I had several other ideas percolating, and came very, very close to profiling Mako Surgical (MAKO) this time around — but I’ve gotten a bit greedy. Since MAKO is so expensive relative to any conventional metrics, and priced for blue-sky growth as the “next Intuitive Surgical” (as it has been dubbed by several pundits), I want some more bad news first. I really want them to report another quarter with good procedure growth and bad device sales, with a few more academic analyses that buttress their argument that the robotic arm really does help to improve outcomes for knee arthroplasty and hip replacement. Then they’d be taking a real page from the Intuitive Surgical handbook, back when I owned IRSG in its early growth days (yes, I sold it far too early in the low $100s) it often made huge jumps up and down on earnings and gave opportunities for long-term holders to get in slowly on the way up if they believed in the story.

I am close to believing in the Mako story and buying the argument — or at least, buying the argument that baby boomers will respond to the marketing campaigns and demand MAKOPlasty over conventional treatments, so we’ll see. That patient demand is the key factor — it was men who saw the marketing that said (with some evidence to back it up) that robotic prostatectomy improved sexual function and bladder control who demanded robotic surgery, and it was those same patients who forced hospitals to compete with one another to see who could attract surgeons and patients by having enough robots available. And as more robots were bought for a million bucks a pop, hospitals felt the need to use them more often, creating a cycle of profitability. So I think we’re close to starting that cycle with MAKO, which will always have a smaller niche than the ISRG da Vinci, but I’m not quite convinced yet … this might be a reasonable time to start nibbling, but I’m going to keep reading.

Today, though, it’s about 3D. Not 3D movies, but three dimensional “printing” — the machines and software that take three dimensional computer designs and turn them into physical objects. It is unbelievably cool, which is why most of the newsletter ads teasing these picks include a video of how they work … and the machines are now reaching somewhat of a tipping point even if they will probably remain marginal toys on the high-end consumer side for quite a while.

And as the Motley Fool folks, Michael Robinson, and now the Casey Research folks in their ad that launched this week have all said, there are a limited number of companies that are poised to dominate the business, much as the few firms like Epson, HP and Lexmark dominated regular desktop printing in the early home computer days before printers became almost completely commoditized (though some of them still do just fine on the rapacious pricing for replacement inks, even though that market, too, has opened up to more competition).

The Casey ad just started running, and it’s one I haven’t written about yet — so let’s build our look at these stocks by first checking out how they tout ’em.

That ad starts out with the big picture tease:

“Former Microsoft Employee Builds Machine in His Basement… Expected to Make Its Way into Millions of US Homes and Gener