Why Polen Capital Crazy About Align Technology (ALGN) and Adobe Systems (ADBE)

Polen Capital is bullish on both Adobe Systems Incorporated (NASDAQ: ADBE) and Align Technology, Inc. (NASDAQ: ALGN). The investment management firm loves the two companies as they were the top performers in the second quarter of 2018, similar to the first quarter. In its Q2 investor letter, Polen Capital discussed Adobe Systems and Align Technology as well as other companies. So, in this article, we’re going to take a look the firm’s comments about these two companies.

Adobe Systems

Adobe continues to see prolific revenue and earnings growth from both its Digital Media and Experience Cloud offerings. The former is Adobe’s decades-old legacy business that is still growing at a blistering pace (nearly 30% recently) as it remains in a near monopoly position in the market for content creation tools. The Experience Cloud helps companies measure the effectiveness of digital content creations. It is unique to have content creation and measurement tools under one roof. Recently, Adobe also announced they will be acquiring Magento for $1.7 billion, bringing a leading e-commerce tools platform to the company. E-commerce was a missing piece that Adobe needed to help companies all the way from content creation, to measurement and commerce.

While still one of our largest holdings, we trimmed our Adobe position in the quarter from 10.0% to 8.5% purely for risk management purposes. We used the proceeds to add to our Microsoft position, bringing its weighting up to 8.5% from just under 7%.

Align Technology

Align had a very strong quarter on the back of very robust growth of its clear aligners with general practitioners and orthodontists, in the United States and abroad, for teenagers and adults. This quarter there was an orthodontic conference where we expected to see the first real competitive products from big companies like Danaher and 3M. As we expected, their first iterations are where Align was 10 years ago. We see little if any risk to Align’s growth from these offerings. In fact, Align is accelerating product development to address many more use cases for its aligners and to bring in patients that might never have considered braces.

We see many years of high growth to come for this uniquely positioned company that is disintermediating an outdated method of tooth movement (cementing braces to teeth).

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Shares of Adobe Systems Incorporated (NASDAQ: ADBE) are up 48.29% since the start of this year. The share price has jumped 11.95% over the past three months and 82.84% over the past 12 months. The stock has a consensus average target price of $289.08 and consensus average recommendation of ‘OVERWEIGHT’, according to analysts polled by FactSet. ADBE was closed at $268.47 on Wednesday. Meanwhile, ADBE is a popular stock among hedge funds tracked by Insider Monkey. As of the end of the second quarter of 2018, there were 67 funds in our database with position in the creative software maker.

Align Technology, Inc. (NASDAQ: ALGN), which manufactures 3D digital scanners and clear aligners used in orthodontics, has been performing well so far this year, with the share price is up 68.35% year-to-date. The stock has moved up 13.21% over the past three months and 112.65% over the past 12 months. ALGN has a consensus average target price of $411.13 and consensus average recommendation of ‘OVERWEIGHT’, according to analysts polled by FactSet. The stock was closed at $389.23 on Wednesday. Unlike Adobe, Align Technology isn’t a very popular stock among hedge funds covered by Insider Monkey. Our database shows that the stock was held by 67 funds as of the end of the second quarter of 2018.

Disclosure: none