Eye-Popping Potential

 | May 26, 2012 | 12:33 PM EDT
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When a stock shows up on several of my various scans simultaneously, I take notice -- it's basically the equivalent of the stock jumping up and shouting, "Look at me!" Well, right now, a couple of companies that make 3-D design and printing gear are doing a good job of getting my attention.

Stratasys (SSYS) is one such stock. This is a decidedly unglamorous company in an unglamorous industry: It makes prototyping 3-D printers for several industries, among them automotive and aerospace.

The stock has been showing good price action in the past several weeks. Stratasys bolted 14.5%, to $41.21, on April 16, following news that it would merge with Israel-based Objet. The combined company's stock will continue to trade under the "SSYS" ticker symbol.

Stratasys shares have added to their gains since the gap-up. On May 9, the company reported first-quarter earnings in line with analyst views, and the stock has been gradually declining since then. However, it has held well above its 50-day moving average.  

The stock closed Thursday at $52.12, about 4.2% above its 10-day moving average. But Stratasys is a good example of why buying in a downtrending market is risky. The stock cleared its prior high of $53.39 on Wednesday in heavy volume -- but, in Thursday's trade, it retraced many of those gains, shedding 4.3%.

That's not necessarily enough to trigger a stop-loss -- which, for a volatile small-cap name such as Stratasys, I would normally set at no more than 10% below the purchase price. Nonetheless, it's discouraging to buy a stock and see it immediately tumble 4% the next day. In a market downturn, stocks can easily fall below a buy point. Remember, about 75% of stocks trend along with the major indices, making new buys fraught with potential downside risk at the moment.

Still, I like Stratasys as a watch-list name. Despite Thursday's retreat, the overall technicals look good, as do the fundamentals. For this year and next, analysts see double-digit percentage earnings increases, so there appears to be plenty of juice to continue attracting institutional money.

Another small-cap in the business of making 3-D imaging gear for industrial use is Three D Systems (DDD).  This company has an even better recent history of revenue growth than does Stratasys, and analysts see more robust earnings increases for 2012 and 2013.

On Thursday, the company said it had acquired Bespoke Innovations, which makes design, scan and print technologies used in the medical-prosthetics industry. Overall, Three D Systems has been in expansion mode lately. The company is already in the prosthetics design business, and it said this latest acquisition would allow it to enhance that product line. Additionally, it makes 3-D print and design gear for the educational, automotive and home markets, among others. 

Moreover, on Thursday Three D Systems reaffirmed its 2012 guidance for earnings to range between $1 and $1.25 per share on revenue of $330 million to $360 million. The company is expected to report earnings sometime around July 26.

Before Friday's open, the stock was up 18.3% for the week, having rebounded from 10-week support.

Shares of Three D are currently trading above their key moving averages. In a bull market, this stock would be right in the buy zone -- between its 50-day line and its prior high, $31.56. As noted above, the absence of a confirmed market-wide rally has thus far prevented me from taking new positions in stocks. But but 3-D Systems is one I'm actively tracking at the moment.  



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