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I'm Buying This Stock Now!

Last week, I introduced you to three stocks I was thinking about adding to my Roth IRA. Among them were Google (Nasdaq: GOOG  ) , Baidu (Nasdaq: BIDU  ) and Intuitive Surgical (Nasdaq: ISRG  ) . Today, I'm here to tell you that -- as soon as Fool trading guidelines allow -- I'll be adding shares of Intuitive to my retirement account.

Read on to get the scoop on why I'm buying, and at the end I'll offer up access to a special free report on three underappreciated stocks that have more potential than the market is giving them credit for.

First, a look at the key metrics
Before giving some color to my investment thesis, let's review how Intuitive's numbers stack up against Google and Baidu.





P/E 35.6 19.1 34.1
P/CF 26.9 13.3 35.7
Revenue growth (mrq) 26% 35% 60%
Earnings growth (mrq) 32% 18% 70%
PEG Ratio 1.65  0.95 0.70
Market Cap $20B $210B $46B

Sources: Yahoo! Finance, Morningstar.

There's no doubt that the revenue and growth of all three of these companies is growing. They are all trading for free-cash-flow multiples less than their growth rate, which means they're all in the realm of reasonably priced.

Making a decision
I have already tapped shares of Google and Baidu in the past for my Roth IRA, so their inclusion plays a role in my choice of Intuitive Surgical -- it's nice to have lots of quality companies to work with. But that alone isn't enough. To me, it's also worth looking at the market cap of these three companies, and realizing that Intuitive is only half the size of Baidu, and one-tenth the size of Google, I think it has lots of room to run.

A number of forces have combined to push the stock down recently. Though earnings were solid, worries about a slowdown in Europe bubbled to the surface. It also didn't help that with the passage of President Obama's health-care law, companies like Intuitive and MAKO Surgical (Nasdaq: MAKO  ) will now be exposed to excise taxes on revenue. In the long run, however, I think these are just hiccups.

In 2011, 72% of all procedures carried out using the company's da Vinci robotic system were either hysterectomies or prostatectomies. Though adoption to new procedures is far from a done deal, there are several areas where the technology is being tested, including other urological and gynecological procedures, lobectomies for lung cancer, colon cancer operations, and trans-oral robotic surgery for head and neck surgery.

And even if growth in other procedures is slow, the company is still adding new tools available to hospitals that will help improve patient outcomes. Among those tools are a set that allows a full procedure to be carried out through a single incision, as well as fluorescence imaging, and a vessel sealer to allow blood to coagulate.

But perhaps the most important number to recognize is that a full 58% of Intuitive's sales last quarter came in the form recurring revenue. This means the razor-and-blade model is working quite well for the company, and it will have far more stability than if the company made most of its money off the sale of the actual da Vinci machine.

Clearly, I think an investment in this company is a smart move. But it's not the only company out there that's worthy of your attention, as I also like Google and Baidu. For those looking for more information on China's answer to Google, I strongly suggest our new premium business report on Baidu, which goes into detail on Baidu's strengths and weaknesses and whether the stock is a buy. You'll also receive updates throughout the year whenever there is a big move or news affecting the company. Get your copy now!

Fool contributor Brian Stoffel owns shares of all companies mentioned in this piece. You can follow him on Twitter, where he goes by TMFStoffel. The Motley Fool owns shares of MAKO Surgical,, Intuitive Surgical, and Google. Motley Fool newsletter services have recommended buying shares of, Intuitive Surgical, Google, and MAKO Surgical. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 09, 2012, at 2:01 AM, strelna wrote:

    Unsure about your future growth rate for ISRG, which may be optimistic. Hugely impressed by historical FCFM.

    I own it, but would rather see P/FCF come down from 29 to a bit nearer ROIC (about 19), say (P/FCF)/ROIC < 1.25. I would like to be more certain about margins; a sentence I think we will be hearing a lot from now on.

  • Report this Comment On August 09, 2012, at 9:12 AM, docnb wrote:

    what proportion of revenues come from prostatectomies? What will be the impact on ITSG as the number of prostate surgeries decreases because of increasing realization that not all patients with prostate cancer need surgery and as more patients are being treated with active surveillance?

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