Despite being a global health emergency, COVID-19 hurt much of the healthcare industry in 2020. People barely know whether they can go to the park or a restaurant, let alone are they making dental appointments.
In fact, the American Dental Association estimates American dental spending declined 38 percent in 2020 and will drop another 20 percent in 2021.
Wearing masks, virtual meetups, and other forms of social distancing meant that people didn’t have to worry as much about oral hygiene. Except that’s not exactly true – plaque and bacterial buildup in our mouths can have long-term health effects.
Almost as important are the long-term financial health effects investors stand to feel by investing in the struggling dental industry.
Here are the best dental stocks to buy in the aftermath of the coronavirus pandemic.
Align Technology Boomed During Shutdowns
Align Technology (NASDAQ:ALGN) is a 3D orthodontics manufacturer that makes Invisalign. These dental treatments are a replacement for traditional braces and retainers and are much harder to see because they’re made of clear plastic.
What really boosted the company’s stock in late 2021 was influencer endorsements from TikTok celebrity Charli D’Amelio and “Black-ish” star Marsai Martin. This drew in younger consumers, but it was already a hit with generations both young and old.
The company grew its market capitalization over $40 billion by year end, and it may have the assets to justify it.
In the third quarter of 2020, the company shipped its Invisalign systems to over 70,000 clinicians around the world. Because they do on-demand in-house manufacturing, Align has healthy margins over 70 percent too.
This fueled revenue of $734.1 million, with $113.4 million of that in recurring revenue. Operating expenses are growing as the company does though. This is because it needs to expand its 3D printing and dental imaging systems servicing revenues to continue sustainable growth.
Align Technology’s short-term problem is the D’Amelio/Martin sponsorship shine is bound to wear off. Its treatments may be cutting edge, but they’re not cheap. Expect to pay $3000-$7000 for the full alignment, and it may not be covered by your insurance plan.
Still, bulls insist Align’s brand positioning and low debt load make it an underrated investment for the next twenty years. Of course, it isn’t alone in the market.
SmileDirectClub Key Patent Failed But It’s Booming
Smile Direct Club (NASDAQ:SDC) pioneered teledentistry in the 2010s, changing the legacy dentist business model.
In fact, it tried to patent its direct-to-consumer 3D-printed teeth aligner model in 2020 but a court found it an unenforceable abstract idea.
The company has a presence in dental and orthodontic offices, but consumers can shop directly online. It mails you a kit that you can use at home to make impressions of your teeth. That mold is then used to create your personalized plastic aligners, which it already did so for over one million customers.
It launched its initial public offering (IPO) in 2019 right before the pandemic hit and struggled to maintain its market capitalization since. By the start of 2021, the company was valued at around $4.5 billion, which could be a steal if the market grows to the 100 million customers that analysts estimate.
In the short term, the company closed much of its retail footprint. It also sued Candid Care, a New York-based company with a similar model it called a copycat in the above-mentioned lawsuit.
Smile Direct Club generated plenty of revenue in 2020 – it reported $107 million in sales for the second quarter and $169 million in the third. Still, its net losses for that six-month period totaled nearly $140 million.
A pandemic with people avoiding dentist offices seems like an ideal time for teledentistry to take off just like telemedicine. But the company’s profits don’t reflect that, even with over 1,000 SmileDirectClub Partner Network clinics.
While the market may grow, there’s little to stop others from muscling in on the company’s market. A court already ruled on that, and it could open the flood gates for more rivals. This company needs to spend as much on marketing as Align and then some if it wants to remain relevant.
Still, bulls remain optimistic a reopened economy will spark interest in watching our mouths.
Henry Schein Leads The World In Market Share
Henry Schein (NASDAQ:HSIC) isn’t a well-known name on the consumer market. But it’s the largest provider of dental and medical office solutions in the world. That means it’s responsible for all those drills and scrapers and everything else being used on you in that chair.
The company also white labels many proprietary branded products to help dental practices maintain a clean and professional image.
It’s a vertically and horizontally integrated healthcare supply giant that includes global manufacturing, distribution, marketing, and more. The company will even consult with clients to create their own solutions.
Henry Schein is often recognized as an ethical company and great place to work through business organizations and partners.
It employs nearly 20,000 advisors working with over one million customers on business, technical, clinical, and supply chain issues. As a member of the S&P 500, it has both large enterprise and government clientele.
Henry Schein’s market capitalization at the start of 2021 was just under $10 billion. Unlike newer companies above, this nearly century-old giant showed exponential growth over the past 20 years and remains a model of where industry trends are.
Because it works deep down the supply chain, the company quickly recovered from the initial pandemic shock. Some clients struggled, but others ramped up orders with Operation Warp Speed government grants.
It also expanded operations through a series of partnerships through the year. The biggest problem it faces is being lumped together with other so-called “pandemic stocks.” When the economy recovers and travel restrictions are loosened, investors may rush toward so-called “recovery stocks.”
This could devalue Henry Schein for a year or more, through no fault of its own. And OWS funds running dry in the first quarter of 2021 could mean it will have to work for its money again. Revenue drops could trigger investors to abandon it at a time of need.
So long as it invests its profits wisely, it should weather any potential storms.
Patterson Companies Is Dentistry + Veterinary
Like Henry Schein, Patterson Companies (NASDAQ:PDCO) is a medical supply conglomerate that serves the dental industry. It also diversified into the veterinary business, and it’s an even older business founded in 1878.
The company is a leader in infrastructure software used in these offices to track patient information. That makes it a great B2B tech play, but it also exposes investors to data breaches and other HIPAA compliance issues.
Patterson Companies started 2021 with a market capitalization of over $2.8 billion. Not only has it recovered from a share price dip, but PDCO share price has also exceeded pre-pandemic price levels.
In its most recent earnings report, the company reported $5.49 billion in net sales for the 2020 fiscal year. That represents a decrease from the prior year, which can be contributed to fewer people going to the dentist or taking pets to the veterinarian.
The American Veterinary Medical Association estimates 30 percent revenue decreases on average across the industry. As the pandemic drags on, there is less money to spend. Patterson may need to cut customer costs to avoid being undercut by the competition.
Still, it has an impressive footprint in the U.S. and globally and remains a piece of the S&P 400 index. And it pays a nice 3.15 percent dividend yield.
And there’s room for more growth. The company has already proven that it can sustain a value over 80 percent higher given the right circumstances. That gives dividend investors something worth smiling about.
Dentsply Sirona Takes A Bite Out Of Byte
Dentsply Sirona (NASDAQ:XRAY) is a mouthful to say, but that didn’t stop the company from entering the S&P 500 as one of the largest dental equipment and consumable manufacturers in the world.
On the medical equipment side, it produces the laboratory and specialty equipment used in dental and orthodontic offices everywhere. It also creates anesthetics, artificial teeth, tooth polishers, and more.
It crashed at the start of 2020 with share prices trading for $31.58 at its lowest. But it showed steady improvement through the end of the year to start 2021 with a market capitalization of $11.75 billion.
By January 2021, it announced an all-cash $1.04 billion buyout of Byte, a direct-to-consumer competitor to Align and SmileDirectClub. This partnership gives it a horse in the most important race of the dental industry.
If it can take a bite out of the competition, it could enjoy a dominant role in the market.
Colgate-Palmolive: 50 Years Of Dividend Payments
Colgate Palmolive (NYSE:CL) is a long-standing multinational conglomerate that produces a variety of home health and personal care products. When panic shopping hit during the coronavirus pandemic, the company’s brands cleaned up, so to speak.
It started the year as a $72 billion company, with a P/E ratio of over 25x and strong global brand recognition.
Toothbrushes and toothpaste remain staples during the pandemic, regardless of whether you’re getting your teeth cosmetically enhanced. While you cut back on vacations and other spending in 2020, you still bought a toothbrush and toothpaste.
Dental offices also regularly stock the company’s products. In fact, you’ll hear Halloween horror stories about dentists giving them out instead of candy to trick-or-treaters.
And this S&P 500 company has paid a fresh dividend every quarter for 125 straight years. On top of this, it raised the payment annually for over 50 years. It had no issue affording $1.2 billion in dividends in the first nine months of 2020 because it had over twice that in free cash flow.
It also has plenty of debt on its books, but it keeps control over it by generating consistent cash.
Because its products aren’t subjected as much to trends or seasonality, investors have learned to expect steady returns by investing in Colgate. It has global consumer brand recognition and plenty of products on store shelves.
But it could find itself in deep water if one of the competitors above or even a company like Dollar Shave Club muscles into its core business segments. And that’s exactly what DSC hopes to do – take over every brand in your bathroom.
There’s one more giant it will have to beat to do it.
Procter & Gamble Remains The Big Industry Gorilla
Procter & Gamble (NYSE:PG) is a giant in consumer goods, with brands like Braun and Gillette, but it also owns Crest and Oral-B, among other oral hygiene brands. This puts it in direct competition with Colgate over market share in just about every corner of your bathroom.
The company’s share prices took a dive to $94.34 during the coronavirus pandemic, but they quickly recovered to old price levels, even reaching near $150.00 per share by year end.
It started 2021 as a $341 billion company and has deep enough pockets to buy almost any of the companies above (or even all the above).
P&G pays a dependable dividend too, at a rate of 2.27 percent. It continued raising this price, despite the pandemic, making investors happy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.