Investing genius Peter Lynch liked to say that to find "tenbaggers," that is, stocks that will increase in value by 10 times or more, you should start by looking close to home. In his book One Up on Wall Street, he also noted he liked to seek out companies in dull, disagreeable industries because they were often overlooked or shunned, giving individual investors a chance to purchase them at a discount.
You can't get much closer to home than your mouth, and you can't find something much more dull and disagreeable than a trip to the dentist's office.
When I last wrote about DentsplyInternational
The U.S. dental market boasts some 150,000 dentists with about 70% practicing alone. Only about 10% practice in groups of three or more, meaning the industry is exceptionally fragmented and competitive.
The 100-year-old Dentsply is the leading manufacturer of dental prosthetics, crown and bridge materials, and endodontic instruments and material used in root canals. And it's getting hard for the market to ignore the company's results. In the past five years, the stock price has risen more than 260% and is up more than 400% over the past decade. Yet it still sports a forward P/E ratio of only 19, just a little more than competitor SybronDental Specialties
Still there are other ways to play an industry that would fulfill Lynch's requirement that it make "people shrug, retch, or turn away in disgust."
For Dentsply to get its products into the hands of dentists (and ultimately into your mouth), it needs distributors. The two dominant players are Patterson Dental
Dentsply believes Japan will be its next big market. It currently derives only 4% of its revenues from Asia, so there is plenty of room to grow. The U.S. and Europe each comprise about 40% of Dentsply's sales.
Whether it's through manufacturers like Dentsply or distributors like Patterson Dental and Henry Schein, investors can mimic Peter Lynch and reap big rewards in dull, depressing, and disagreeable businesses.
Fool contributor Rich Duprey is often accused of being dull, depressing, and disagreeable. He does not own any of the stocks mentioned in this article.