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Stock Strategist Industry Reports

Dental Industry Provides Opportunities

The dental industry has attractive long-term characteristics.

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Although the stock market has rebounded as of late, we don't think it's too late to go on the hunt for value. The dental sector is a decent place to start, as it has shown some resistance to economic recessions in the past. This time around has not been much different, as some of the stocks we cover in this industry, including  Dentsply International (XRAY),  Patterson (PDCO), and  Henry Schein (HSIC), have all outperformed the broad market year to date. The overall industry has definitely shown signs of slower growth over the last year, particularly with respect to elective and cosmetic procedures. However, we think it has the ability to rebound faster than the overall market when the current recession begins to reside, partly as consumers start to pile into dentist offices for treatments previously canceled or delayed for financial reasons.

Of the four dental-related companies we cover, three are currently rated 4 stars or higher. While the share prices of these firms have bounced back off their lows from earlier this spring, we feel these companies still have some room to run over the next year or so for several reasons. The dental industry benefits from a relatively stable outlook along with a number of trends that support long-term growth. While spending has slowed recently in lockstep with the current recession, it is expected to recover to a 4.3% growth rate by 2010, on its way to a more normalized run rate of 6% annual growth, according to the Centers for Medicare and Medicaid (CMS). There are several other trends that underscore long-term stability. People are maintaining their teeth longer in general and the demand for cosmetic procedures has grown. Overseas, awareness of the need for healthy teeth is growing, with demand for dental services and products moving in lockstep with this sentiment. We think the international market will likely be a sweet spot for future growth for dental players large and small.

Bill Buhr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.