My wife and I recently helped our daughter Jordan find a reliable used car.
And since Jordan only recently got her grad degree, I have to say she was pretty price sensitive.
She had roughly $9,000 to put down and wanted to limit her payments to about $100 a month, so there wasn’t a lot of wiggle room on cost. She bought, a 2009, one-owner, fully loaded Honda CRV with only 45,000 miles on it.
I’m bringing this up to you because I think our recent experience illustrates a very important point for tech investors.
When it comes to putting your money in stocks that can crush the market, don’t let high “sticker prices” warn you off of great opportunities to build lasting wealth.
Instead, you have to focus on the long-term upside. You know, it’s the old saw by Warren Buffett that price is what you pay but “value is what you get.”
And that really comes into play with a firm that is pioneering the field of robotic surgery.
At first glance, $600 a share seems steep. But this is a stock that could hit $1,800 a shares in as little as seven years.
A High Price Can Still Go Higher
Now then, I often go out on a limb to show you how a tech leader that many analysts consider “expensive” can score you big profits.
At the time, it traded at $462. On a split-adjusted basis, it’s trading at $2,226.
That means it’s now trading 122% above my target price. But from the day I made that call, it’s up 381%.
I’m not saying this to brag, well maybe just a little, but to show you I have the track record to back up my bold calls.
And I see a lot of upside ahead for Intuitive Surgical Inc. (ISRG). The firm is widely revered for its da Vinci advanced robotic systems for minimally invasive surgery.
Launching back in 1995, the firm’s equipment has been used in more than 7.2 million procedures worldwide. It has sold nearly 5,500 of its da Vinci systems at a cost often exceeding $1.5 million.
With all this in mind, let’s run it through my filters for finding true tech wealth. Take a look:
Tech Wealth Rule No. 1: Great companies Have Great Operations.
These are well run firms with top-notch leaders.
Most investors have never heard of Gary Guthart but he has run this crackerjack operation for almost exactly a decade this month. He grew up in Silicon Valley and later got his doctorate degree in engineering from the California Institute of Technology.
He was early to the robotic surgery game, becoming the firm’s 11th hire back in 1996. As CEO he has built a great company.
But you don’t have to take my word for it. ISRG’s products and procedures have been chronicled in no less than 21,000 peer-reviewed articles. And Guthart was recently the subject of a flattering profile in Investor’s Business Daily.
Tech Wealth Rule No. 2: Separate the Signal from the Noise.
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
Last April, Wall Street grossly overreacted to the firm’s first-quarter report. Earnings per shares lagged the Zacks Investment Research forecast by just 3%.
Over the next two months the stock was off 18.6%. But from last June third till its recent high on January 13, it’s up 31.6%. That means it beat the S&P 500 by nearly 50% in that period.
Tech Wealth Rule No. 3: Ride the Unstoppable Trends.
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
This firm is targeting a trend that is simply exploding. Doctors and patients are looking for quality operations with reduced chances for human error and with minimal side effects and recovery time.
Acumen Research and Consulting says the market for minimally invasive surgery will grow by 9.6% a year through 2026. At that point the market will be worth $33.8 billion.
Tech Wealth Rule No. 4: Focus on Growth.
Companies that have the strongest growth rates almost always offer the highest stock returns.
For this year’s first quarter, the firm has issued preliminary results. Compared with a year ago, da Vinci systems were used in 19% more operations. For the full year, they grew by 18%.
Sales in the period were up 22% compared with the year-ago level of $1.05 billion. For the full year, the company forecasts 20% growth to nearly $4.5 billion.
Tech Wealth Rule No. 5: Target Stocks That Can Double Your Money.
This is where we look at the firm’s earnings growth and see how long it will take the firm to double profits. By doing that we can figure out how long on average it should take for the stock to roughly double.
I’ve gone through the firm’s financials in detail and I’m projecting earnings per share will grow by an average 21%. That figure exactly matches its three-year average.
Now we use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound growth rate of 28 into the number 72.
We find that it should take 3.5 years for ISRG to give us 100% gains. We can expect that to rise to 200% returns in another 3.5 years, or just seven years total.
With a $69 billion market cap, the stock trades at roughly $600. Over the past five years, it has beaten the S&P 500 by 295%.
Add it all up and you can see that Intuitive Surgical is the kind of stock where focusing on making money is more important than worrying about the price.
With so much upside ahead, this is the kind of tech leader that can greatly improve the value of your portfolio.
And that’s because we can count on ISRG to give us market-beating returns for many years to come.
Powered by WPeMatico