3D Stocks Raising Their Profiles

Top 10 Cheap Companies To Buy Right Now

The 3D printing industry is growing by leaps and bounds—and taking the share prices of some of the sector's leading lights up with it.

According to Gartner, global shipments of 3D printers grew by an estimated 49 percent in 2013, and will grow by 75 percent in 2014. Gartner also expects the market to double in growth by 2015.

That's heady stuff for a market that is still relatively new, and it's definitely a wake-up call for investors constantly on the lookout for the next "big thing" in technology.

“The 3D printer market has reached its inflection point,” notes Pete Basiliere, research director at Gartner. “While still a nascent market, with hype outpacing the technical realities, the speed of development and rise in buyer interest are pressing hardware, software and service providers to offer easier-to-use tools and materials that produce consistently high-quality results.”

The next-year-and-a-half is of vital importance to the 3D industry, as potential customers emerge from tire-kickers to actual product buyers.

“As the products rapidly mature, organizations will increasingly exploit 3D printing’s potential in their laboratory, product development and manufacturing operations,” adds Basiliere. “In the next 18 months, we foresee consumers moving from being curious about the technology to finding reasons to justify purchases as price points, applications and functionality become more attractive.”

Big box office services stores like Staples (NASDAQ: SPLS) are already carrying 3D printers, and models for the home office market—a real jumping off point for the market—should be commonly available in 2016.

By and large, 3D printing designs and makes 3D products through an! intricate process that builds layer over layer via an additive material and a digital file that produces products for a variety of industries as diverse as aerospace and consumer goods. According to a separate 2013 study by MarketsandMarkets, "3D printing has a huge growth potential, especially, in markets that are characterized by low volume, complex architecture and highly individualized applications."

What stocks show the most potential for growth in the 3D world?

I like two in particular: 3D systems (NYSE: DDD) and Stratasys (NASDAQ: SSYS).

Stratasys is trading at $123 per share, and consensus analyst expectations see the stock rising to $143 over the next year. Last Friday, Brian Drab, a technology analyst at William Blair, upgraded Stratasys from "underperform" to "market perform."

“We have long considered Stratasys to be one of the highest-quality ways to invest in the 3D printing industry and continue to have confidence in management’s overall strategy and ability to execute,” Drab wrote.

That created a great deal of buzz on Wall Street, and SSYS saw its share price rise $4 on the news.

Stratasys is in direct competition with 3D Systems, with the former's MakerBot printers going head to head against the latter's Cubify line of 3D printers in the rapidly growing consumer 3d printer market.

Revenues are already running ahead of expectations, and that should provide a real boost for Stratasys stock price. “Continuing strength in the core business, successful integration of Objet, potential upside to revenue expectations for MakerBot, several new product launches, and the announcement of several new partnerships collectively have given us increased confidence in Stratasys’s ability to achieve better than 20 percent earnings per share (EPS) growth over the next several years,” writes Drab in a research note.

The company is expected to announce earnings in early March, and the early consensus i! s that re! venues will grow by over 100 percent, another good sign for SSYS investors.

3D Systems may offer investors an even greater upside.

Last week, the company inked a pact with Hasbro (NYSE: HAS) that could bust the consumer-side of the 3D printing market wide open. Both companies say new family-oriented 3D printing games and products should be on Hasbro store shelves by the end of 2014, just in time for the holidays.

“We believe 3d printing offers endless potential to bring incredible new play experiences for kids and we’re excited to work with 3D Systems,” notes Brian Goldner, chief executive officer at Hasbro.

The Hasbro deal could be a game changer for the entire 3D printing market, and especially for DDD. The pact opens up new-age printing games and products to the family, and breaks it out of the office market and into a lucrative new age of kids and their parents enjoying 3D printing "experiences" together.

But 3D Systems has a lot more going for it than a big toy deal. Revenues are growing each quarter (50 percent higher on an annual basis, based on last quarter's figures), debt is manageable, and the company's earnings-per-share story is a solid one.

Revenue growth is way ahead of the industry average of 4.7 percent, and EPS was up 6.3 percent in the fourth quarter, with most analysts expecting a higher growth rate in 2014.

3D Systems has had its problems in previous years, but with an improving revenue picture, good alliances with high-profile corporate partners like Hasbro, and a rising EPS scenario, 3D Systems should be good for another 15-20 percent rise in earnings in 2014, as its long-term outlook improves substantially.

“Consistent with our previous comments, during the fourth quarter we made very significant R&D, manufacturing and marketing investments designed to accelerate revenue growth that resulted in substantially compressed earnings for the fourth quarter,” said Avi Reichental, CEO of 3D ! Systems a! fter fourth quarter earnings were released. “As we previously stated, we are willing to tolerate earnings reduction and even slight gross profit margin compression during this period to substantially accelerate our growth rate and market share."

"We firmly believe that these accelerated investments that already resulted in the announcement of 24 new products over the past nine weeks position the company to double its revenue over the next couple of years on organic growth of at least 30 percent going forward and to achieve greater earnings power and profitability over the long term.”

That's a picture investors won't mind framing.

Brian O'Connell is an investment analyst at Investing Daily. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.

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