Ever since this summer, I've been thinking out loud about how I'm picking investments for my retirement portfolio. Just before Christmas, I introduced five stocks that were potential buy candidates.
After winnowing the options to three companies -- MAKO Surgical (Nasdaq: MAKO ) , Baidu (Nasdaq: BIDU ) , and IPG Photonics (Nasdaq: IPGP ) -- I settled on the one that best fit my portfolio. Read on to find out why surgical-device maker MAKO beat its competition.
But first, our honorable mentions
Baidu, the Chinese version of Google, has been growing by leaps and bounds as more and more Chinese citizens come online. Over the past five years, revenue and earnings growth has been astounding, up 70% and 80%, respectively, over the past five years!
But shares are down almost 30% from their summer highs because of fears the Chinese government will be slowing growth. That, combined with competition from Sohu.com (Nasdaq: SOHU ) , has spooked investors for the time being. Baidu will probably make the cut and end up in my Roth eventually, but patience may be rewarded, as I think there's a good chance shares could be even cheaper next month.
And the story is much the same with IPG Photonics. The company's fiber-optic lasers are a textbook disruptive innovator. Not only do IPG's lasers pack more punch for less cash, but they are also vertically integrated, because of their own diode producers.
Although such integration is a great thing during good times, it can put the company in a crunch during lean times. Because the company's lasers are used in heavily cyclical industries, and some foresee a global slowdown on the horizon, shares have lost more than half of their value since early July. I already own some IPG in a different portfolio, and I think it has a place in my Roth as well; but like Baidu, I think it'll be possible to pick up shares even cheaper next month as well.
And while trying to time the market is a very foolish (small f) thing to do, I'll still be happy with passing on Baidu and IPG, as I think MAKO has a lot going for it, with less near-term pressure than the other two options.
My interest in MAKO lies in four crucial facts.
- Proven product. MAKO's robotic surgery system, dubbed Rio, has proved itself as an effective solution to knee procedures that don't involve all three compartments of the knee. MAKO's system is both less invasive and allows for quicker recovery time than standard knee-replacement procedures.
- Aging population. Our baby boomers are retiring en-masse and living longer than any previous generation. There are a lot of folks who will be looking toward MAKO to help prolong their lives as active and involved individuals.
- Hip replacements. MAKO just recently received FDA approval for use of the Rio system to perform hip-replacement surgery. This new procedure is untested on a large scale as of yet, but if results are anywhere near as successful as they have been for knee operations, the company will be sitting on a second winning cash-cow.
- Innovation. David Gardner has made a career out of picking companies with "multiple futures," where there's no telling what a company will be doing 10 years from now because innovation is part of its DNA. I think MAKO has that trait engrained in its company, and buying now gets an investor in early, before the next breakthrough comes along.
Shares of the company are down more than 35% since October. Shares were already highly priced, as the company has yet to turn a profit, and fears that the Rio wasn't a cost-savvy purchase for some hospitals helped drive shares down.
But long-term trends are on MAKO's side. Just as Intuitive Surgical (Nasdaq: ISRG ) was able to capitalize on robotic surgery for internal organs -- in particular, the prostate -- MAKO can be the company to capitalize on joint problems.
As colleague Dave Meier pointed out when buying the company for his Rising Star portfolio: "By 2030, the National Institutes of Health projects there will be 72 million Americans over 65 and at high risk of developing osteoarthritis. The rising trend of obesity also makes Americans more likely to develop joint problems."
That's a trend I'm willing to put my retirement money -- and a CAPScall in my profile -- behind.
How's your retirement nest egg doing?
One of the reasons I started this series was to increase awareness about saving up for retirement. After paying off high-interest debt and building an emergency fund, saving for retirement should be your No. 1 financial priority.
If you're lucky enough to have an employer that will match your 401 (k) contributions, that's great, but it may not be enough. That's why I'm encouraging readers to investigate their Roth IRA contributions as well, which have their own tax advantages.
We've assembled a special free report, "The Shocking Can't-Miss Truth About Your Retirement," to help you out. Inside, you'll get straightforward and seemingly simple tips that most people miss in an effort to boost their savings. Get your copy of the report today, absolutely free!