Baron Growth Fund recently published its fourth-quarter commentary – a copy of which can be downloaded here. During the fourth quarter of 2020, the Baron Growth Fund returned 21.1% (institutional shares). In comparison, the benchmark S&P 500 Index was up 12.15%, while the Russell 2000 Growth Index was up 29.61%. You should check out Baron Growth Fund’s top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.
In the Q4 2020 Investor Letter, the fund highlighted a few stocks and Desktop Metal Inc. (NYSE:DM) is one of them. Desktop Metal Inc. (NYSE:DM) is a technology company that designs and markets 3D printing systems. In the last three months, Desktop Metal Inc. (NYSE:DM) stock gained 10.3% and on March 16th it had a closing price of $18.92. Here is what the fund said:
“This quarter the Fund made a private investment in Desktop Metal, Inc., an emerging leader in additive manufacturing systems. Additive manufacturing, which is colloquially known as “3D printing,” has long tantalized manufacturers with the idea of a single machine capable of producing an unlimited number of parts with infinite degrees of complexity from a vast array of materials.
Traditional manufacturing techniques frequently rely on expensive equipment known as “tooling.” Tooling is limited in the range of parts it can make, and creates high levels of scrap, waste, and pollution. Manufacturers also have to make runs that exceed a minimum size in order to cover the significant upfront cost of the equipment. We believe that additive manufacturing has the potential to improve on many of these shortcomings. A single, flexible additive manufacturing system can reduce the required investment in tooling, eliminate scrap, waste, and inventory, decrease time-to-market, and reduce complexity. Ultimately, additive manufacturing can reduce the total cost to make a part of product.
The additive manufacturing industry already generates around $12 billion of annual revenue, primarily from parts and services, and is growing at a 20% CAGR. However, over 80% of companies restrict their use of additive manufacturing to design and rapid prototyping rather than making end-use parts. To date, most additive systems have limits in their speed, accuracy, material variety, and build volume that have inhibited them from being used to manufacture end-use parts.
We believe that Desktop Metal’s breakthrough product portfolio overcomes many of the limitations that have historically constrained additive manufacturing to prototyping. The company’s patented single-pass jetting technique is up to 100 times faster than existing metal 3D printing technology. It is designed to work on almost any metal alloy or ceramic material that can be developed with a powdered metallurgy process. Desktop Metal’s system is managed by proprietary fabrication and sintering software that automates the entire build while improving part accuracy and reducing waste.
We believe that Desktop Metal’s enhancements to speed, throughput, ease of use, and material menu will help additive manufacturing cross the chasm from prototyping to production. As additive manufacturing is adopted for end-use parts, we expect industry growth to accelerate toward 25% annually. The additive manufacturing industry has the potential to approach $145 billion in annual revenue, or more than a 12 times increase from current levels.
Desktop Metals will monetize its technology by selling 3D printers and metal powder consumables, analogous to the way traditional printer companies make money by selling hardware and ink refills. We expect Desktop Metal to eventually manufacture parts for customers on an outsourced basis, further expanding its ability to capture revenue. The company already generates attractive gross margins on its proprietary hardware, and we expect hardware margins to increase with scale. As the company’s installed base grows, it will sell an increasing quantity of consumables, which carry relatively higher gross margins and will improve the company’s overall profitability. This should grow as the company brings a greater variety of materials to market, increasing its portfolio and broadening the use cases it can serve.
As with all our investments, we believe that Desktop Metal is run by a best-in-class management team. Desktop Metal’s binder jetting method traces its roots to MIT, where Dr. Eli Sachs and colleagues invented the technology. Dr. Sachs and colleagues are co-founders of Desktop Metal, along with CEO Ric Fulop and CTO Jonah Myerberg. Management is complemented by a Board of Directors that boasts representatives from the world’s largest manufacturers, including Ford, General Electric, and Koch Industries.”
Earlier this month, we published an article revealing that Desktop Metal Inc. (NYSE:DM) was one of the top 5 stock picks of value investor Bill Miller.
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Disclosure: None. This article is originally published at Insider Monkey.