On November 12th we wrote in our morning commentary (located here) how we thought investors should treat their investments in the 3D printing sector. Sadly, those comments were perceived as negative and many readers failed to recognize the overall value of the article. The fact of the matter is that we are not bearish of the entire industry and looking to make money as we bash stocks in the sector, but are generally bullish of the sector but want investors to protect their gains and better insulate themselves in preparation for the next correction.
That was the hope behind the article. We have taken part in numerous mini-bull markets such as this and have seen how they play out. Sometimes we have gotten caught up in the hoopla and failed to exit on time and other times we have exited totally before the downturn happens. The takeaway from the last decade has been that locking in gains along the way is the sure way to guarantee one has something to show for great calls.
We remain bullish on the technology trend moving forward, but think investors need to analyze 3D Systems (DDD), Stratasys (SSYS), Voxeljet (VJET), The ExOne Company (XONE) and Organovo (ONVO) and the risk/reward each name offers in order to develop a portfolio which matches their risk profile and to develop a plan to lock in profits along the way.
Chart of the Day:
These are the types of moves we feared for investors in the sector who were not taking profits along the way. This is why we believe caution should always be exercised. There is always a bear or short-seller trying to call tops in these "bubble" sectors and Voxeljet was the target this time. Smaller companies are the easiest targets, especially when fast money is involved.
Source: Yahoo Finance
We have economic news today and it is as follows:
- Initial Claims (8:30 a.m. EST): Est: 333k Actual: 323k
- Continuing Claims (8:30 a.m. EST): Est: 2863k Actual: 2876k
- PPI (8:30 a.m. EST): Est: -0.2% Actual: -0.2%
- Core PPI (8:30 a.m. EST): Est: 0.1% Actual: 0.2%
- Philadelphia Fed (10:00 a.m. EST): Est: 11.9
- Leading Indicators (10:00 a.m. EST): Est: N/A
- Natural Gas Inventories (10:30 a.m. EST): Est: N/A
Asian markets finished lower today:
- All Ordinaries -- down 0.36%
- Shanghai Composite -- down 0.04%
- Nikkei 225 -- up 1.92%
- NZSE 50 -- UNCH
- Seoul Composite -- down 1.16%
In Europe, markets are trading lower this morning:
- CAC 40 -- down 0.49%
- DAX -- down 0.36%
- FTSE 100 -- down 0.00%
- OSE -- down 0.64%
That next pullback we alluded to has already begun. Our article was out two to four days before the top, depending on which chart you are looking at, and we do hope that some of our long-time readers were able to benefit from our thinking. After having called the bottom in 3D printing stocks about a year ago, and leading readers into the sector we hope that our credibility was enough to convince some that profits did in fact need to be taken.
The issue right now is not industrywide, but is just as we predicted among the smaller names in the sector. Everyone has been hit, including 3D Systems and Stratasys, but the main culprit has been Voxeljet which many will remember was the hot, high-flying IPO. The short selling firm Citron Research issued a report which called into question Voxeljet's use of loans to customers to help them purchase printers in their Q3 results and the stock. The stock was hit hard yesterday as investors reacted and shares finished the session lower by $18.80, or 32.41%, to finish the session at $39.21/share. The smaller names in the sector such as Voxeljet, The ExOne Company, and Organovo are the types of names that one really has to pay attention to and harvest gains after these big runs or risk seeing profits dissipate during corrections such as the one we are currently seeing.
Looking at the sector after the move downward, Voxeljet shares have been killed, and are trading at their lowest levels since before November. If the shares trade much lower they will be trading at levels below what many have seen them trade for after their IPO, which is a big deal.
Also hit hard has been Organovo, the 3D printing company that has a healthcare focus and could be a big winner down the road. This was one of the names we were growing concerned with after a meteoric rise (which continued a few days after our original article) and has since seen all of those gains given back.
We are not buyers yet, but we do think that the downside risk has been diminished significantly. Worst case is that the shares find support around $6/share.
Source: Yahoo Finance
The ExOne Company has been able to hold in rather strongly, but the stock was already taking its lumps before the rest of the 3D printing stocks were getting hit. This is one name which actually does not look too bad at these levels, but we would exercise caution at this time as there is going to be a lot going on in response to the concerns raised by Citron Research regarding business practices at Voxeljet. We might see some of the bigger research firms trim exposure and their outlooks for the industry and that would affect everyone.
3D Systems will find support before the smaller names in the sector, so this name needs to be watched even if one is only interested in owning the more volatile names in the 3D printing realm. Best case scenario is that the stock finds support in the $65-70/share range, which might have already happened.
Source: Yahoo Finance
If one wants to play the sector we still think that the two must own names for any diversified 3D printing portfolio are 3D Systems and Stratasys. The two companies have large books of businesses and are actively expanding operations while also providing investors with stocks that are quite liquid and relatively stable when compared to other names within the sector. The latest euphoria in the 3D printing industry was caused by rumors that IBM might be interested in an acquisition and day traders were quick to push hot money into the sector, but with this money exiting and stock prices back to around levels seen pre-speculation these would be the first names we bought on any further pullback - assuming of course that Wall Street maintains their outlooks and bullishness for the sector. If downgrades are coming we would let that play out and then put money to work, but no matter when readers decide to deploy capital we would recommend that purchases be made in intervals rather than all at once.