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4 Stocks I'm Considering Buying Now

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One year ago, I started to publicly announce the stocks I was considering adding to my Roth IRA on a monthly basis. The results so far haven't been bad, with the overall portfolio returning 7.4%. But that return is trailing the S&P 500 by 1.8 percentage points over the same time frame, and my lump sum growth and retirement portfolios have fared much better.

The No. 1 lesson I've gleaned from this relative underperformance is the importance of sticking with what I know and not being afraid to buy the same company more than once if I believe in it. Too often, I've ventured into stocks that I didn't fully understand or have a firm, long-term conviction in.

In that vein, all stocks I'm considering are ones that I already own, that I believe in owning for the coming decade, and that I believe are trading for fair prices. In today's article, I'll give you the big picture behind these four stocks; when I pick one to buy on Friday, I'll offer up a more in-depth view of my reasoning.

Baidu (Nasdaq: BIDU  )
Two months ago, I bought this Chinese Internet search giant because I believed it would continue to benefit from being the webpage of choice for the growing legions of Chinese Web users. To support my case, I dug up some numbers on the story playing out on the other side of the globe:

  • In 2006, only 10% of Chinese residents used the Internet. Just four years later, that number had more than tripled to 35%. But that leaves 65% of the Chinese population yet to come online.
  • The Asian continent alone has 56% of the world population, but only 26% of those people were using the Internet by the end of 2011.
  • The total number of Internet users China added between 2005 and 2010 was greater than the entire population of the United States.

The stock is trading today at almost the same price it was back then. This is partly because some are worried that Qihoo 360 (NYSE: QIHU  ) is gaining market share in search.  But as fellow Fool Rick Munarriz points out, these price fluctuations just don't make sense. Even if Baidu is losing share, it's entirely possible that the overall market is growing so much that the overall impact isn't as bad as bears would have you believe.

Intuitive Surgical (Nasdaq: ISRG  )
It was just one month ago that I added Intuitive Surgical to my Roth IRA, but I've been holding it in other accounts for much longer. The company makes the daVinci Robotic Surgery System, which is used to perform minimally invasive surgeries.

In the past, these surgeries have focused on prostatectomies and hysterectomies. But as doctors continue to experiment with the system, there are chances for the daVinci's use in a myriad of other fields and operations, including urology, lobectomies, and head and neck procedures.

Last quarter, 58% of the company's revenue came from recurring sources, which means Intuitive is more than just a system sales organization; it's also a service and parts company. That's an important distinction to gauge the company's long-term profitability.

The market is currently worried about a slowdown in procedures, particularly in Europe. But I think the current prices offer an opportunity for long-term investors.

Johnson & Johnson (NYSE: JNJ  )
I'll admit it, this medical conglomerate isn't nearly as exciting as my other four candidates from a growth perspective. Rather, it's a well-entrenched company that is able to pay out steady dividends and is trading at what I consider to be a fair price. That's why I added it to my retirement portfolio over a year ago.

Currently, the company is yielding a fat 3.5% dividend for investors while only using up 50% of free cash flow to pay that dividend. Add in there the fact that Johnson & Johnson has raised its dividend for 50 consecutive years and grown it by an average of 8.7% over the past five, and it's easy to look past the company's recent missteps and focus on today's bargain offer.

Google (Nasdaq: GOOG  )
Finally, we have the most visited website (and advertising platform specialist) in the world. On three different occasions I've bought into Google, and I see no good reason to stop considering the company's stock.

While some have complained about the company's impending stock split and the way Larry Page and Sergey Brin have made it almost impossible to lose their majority stake in the company, I'm just fine with it. In fact, the visionary leadership these co-founders provide is one reason I like the company so much: They have an ultra-long time horizon when thinking about the company.

Over the first half of 2012, the company has grown revenue by 23% and free cash flow by 34%, all while making sure it is investing for the future. Trading at just 17 times free cash flow, I think this solid company is a steal.

Tune in this Friday to see which of these four candidates ends up being my choice. In the interim, if you want to get the full scoop on Baidu, our very own Andrew Tonner has prepared a special premium report on this Chinese search giant. Access to the report also gets you exclusive ongoing coverage from our top technology analyst. Get your copy of the report today!

Fool contributor Brian Stoffel owns shares of Google, Baidu, Johnson & Johnson, and Intuitive Surgical. The Motley Fool owns shares of Intuitive Surgical and Baidu.com. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical, Johnson & Johnson, Google, and Baidu.com, as well as creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not 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.


Read/Post Comments (6) | Recommend This Article (15)

Comments from our Foolish Readers

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  • Report this Comment On August 28, 2012, at 5:41 PM, oceanbluela wrote:

    Insightful article and picks, Brian. And I'm not just saying that because you chose 3 of my favorite companies. I remain temporarily wary of JNJ and haven't held it for several years because of what I considered to be mismanagement. That's a nice dividend though. BIDU and ISRG are two of my core holdings and in the top five of my positions. I expect to see them there for many years.

  • Report this Comment On August 28, 2012, at 8:06 PM, TempoAllegro wrote:

    Brian, I'd agree that these are good picks, generally speaking. But you (and I) already own some of them in non-IRA accounts, so I think we know enough about them to narrow it down to two or even one.

    I currently own ISRG and JNJ (through a DRIP), and have recently owned GOOG (and keep sweating whether I should keep it in my portfolio.

    The three things we can keep in mind are market conditions (volatile at best, and in my opinion ready to fall through the floor any time now), your personal circumstances (you are putting it into a Roth IRA and planning to hold for 10 years), and the characteristics of the stocks themselves.

    We know that dividend-paying tend to do well over the long run, and companies with little debt do better in challenging economic times. JNJ is the only dividend stock on the list, and ISRG is the best cash-rich stock. One article I saw yesterday said that for ISRG, cash & short-term investments as a % of assets is about 29% (as of July this year). All you can do to protect against the upcoming market turbulence is stay invested and have cash ready, but make sure that your companies are similarly ready with cash of their own to weather the storm.

    Normally, for an IRA account we would only want to consider dividend-paying stocks. But there are some circumstances when it may be possible to add a company that has no dividend at present. As to time horizon, I think things very muddy for both BIDU and even GOOG. GOOG is obviously a much better choice than BIDU, for its innovation and global reach.

    As to characteristics of the companies themselves, let's talk business models. GOOG is basically still an Internet advertiser and as it struggles to break away from that model it will be confusing. BIDU, as a Chinese-protected, less-successful version of GOOG in terms of its reach or business model, I would stay away unless you're a trader or can forecast the right time to get out of that investment. Eventually, it's doomed because either the competition will out-innovate it or its protection will vaporize. Now, JNJ has a decentralized business model which has led to quality control issues, and it remains to be seen over a longer period of time whether the new CEO can correct the problem. Let's say he does - it is still a sprawling company with many moving parts that I would say is not going to be easy to understand. Then there is ISRG, which you already own and, I assume, like and understand, which has the razor-and-blade business model, which you discussed a bit above. It has one main product and services and parts that go with it, plus lots of cash. OK, no dividend yet. Also, no competition.

    My vote is for ISRG, even for the IRA, if you only have these four to go with, because it is easy to understand, and the growth that is coming for it will make up for the fact that it does not put out dividends yet.

  • Report this Comment On August 29, 2012, at 11:16 AM, TMFCheesehead wrote:

    @Tempo-

    Thanks for the detailed feedback. Check in on Friday to see if we agree!

    Brian Stoffel

  • Report this Comment On August 29, 2012, at 7:28 PM, Mliaom wrote:

    I think BIDU is offering the most attractive valuation at the moment. Next inline would be ISRG followed by Google.

    GOOG had a good run as of late so no bargain there.

    JNJ? Really? Brian? Come on man! No way you are picking that. If you want a rising, steady dividend at fair value, why not go with the MO? Heck even AFL is offering an awsome bargain at a PE of 8 and almost 3% yield

    MY money is on BIDU for friday.

  • Report this Comment On August 29, 2012, at 7:35 PM, Mliaom wrote:

    This illustrates my point very well. In order to get the same PE of 29 you have to go all the way back to 08-09 peak of market decline.

    http://ycharts.com/companies/BIDU/chart#series=type:company,...

    Amazing deal! if it goes below $100 I will add even more.

  • Report this Comment On August 31, 2012, at 4:43 PM, Mliaom wrote:

    Its Friday. I'm curious Brian, which one did you choose? Where can I find your article?

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11/26/2014 3:59 PM
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Baidu CAPS Rating: ****
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ISRG $515.01 Down -1.48 +0.00%
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