Why Dentsply Is a Stock to Buy

Looking for a stock you can really get your teeth into? OK, that was a pretty
cheap lead, but its still appropriate for the dynamic medical devices company
Dentsply International (NASDAQ: XRAY ). Dentsply, up 24.85% in October and down
only slightly since Nov. 1, is a world leader in the products used by dentists
and orthodontists, with over $2.2 billion a year in sales of dental procedure
consumables, lab equipment and specialty products. While Dentsply was originally
founded in 1899 as a producer of artificial teeth and consumable products, the
companys current incarnation is the result of the acquisition of Dentsply
International by Gendex , a leader in X-ray imaging, two decades ago. The merger
created a global dental products powerhouse with a reputation for heavy research
and development that has spawned significant innovations. The global market for
dental products is up to $20 billion, and about three-quarters of the total is
consumables. The market is highly fragmented, with the top 10 companies fighting
for 60% of the market. Morningstar analysts believe that Dentsplys strong brand
name and diverse product selection has provided a strong economic barrier to
entry and pricing power. In June, Dentsply acquired Astra Tech the dental
implant division of AstraZeneca (NYSE: AZN ) for $1.6 billion. The move showed
the firm is focused on expanding with strategic acquisitions of companies with
products that can plug right into its vast distribution networks. While the
dental industry has weathered past recessions well, Dentsply has a few issues.
The most important is that dental crowns and dentures, which are only partly
covered by dental insurance, will be hit hard if the economy dips again. Second,
the companys revenues are susceptible to a weak business cycle meaning it may
have to spend increasingly more on innovation to maintain its current level of
business. That could erode earnings. Other factors play to Dentsplys advantage:
The U.S. population is aging, causing more demand for dental work. There has
been a steady increase over the last decade for cosmetic treatments. And there
are growing needs for dental products and procedures in emerging markets where
people with rising incomes want to take better care of their teeth. In the past
year, Dentsply shares have been through the wringer, and many analysts believe
it has the pieces in place to resume a strong advance. My model has liked XRAY
for several months in a row, and now it appears to have the wind at its back for
a move back toward its 2007 high at $45. For more guidance like this, check out
Markmans daily trading service, Traders Advantage, or his long-term investment
service, Strategic Advantage