The stock market is coming off a brutal January, the worst that investors have seen in years. Its decline of a little less than 6% marks the first time since 2016 that the S&P 500 has fallen by more than 5% in the opening month of the year. Such large, single-month drops are rare for the normally stable index. However, it's still not as bad as in March 2020 during the initial stage of the pandemic, when the index shattered and lost more than 12% of its value in just a single month.
An all-out crash may not be happening just yet, but if it does, there are a couple of attractive growth stocks that investors should pounce on. Both Intuitive Surgical (ISRG -0.50%) and Beyond Meat (BYND 4.62%) have some attractive growth prospects, and the only thing that prevents me from buying them now is their high valuations.
Image source: Getty Images.
1. Intuitive Surgical
Intuitive Surgical's robotic surgical systems help make the work of surgeons more efficient and precise. Robot-assisted surgery is a market that's still in its early growth stages. Globally, it was worth an estimated $3.6 billion last year, according to Grand View Research. And until 2030, researchers estimate it will continue to expand at a compound annual rate of 19.3%.
Key to Intuitive's growth are its da Vinci systems, where surgeons can use a console to conduct minimally invasive procedures. A good way to gauge the success of a product is in the numbers. Here's how adoption of the system has gone over the past four quarters:
| Period Ending | Installed Base | Systems Shipped | Growth Rate (Procedures) |
|---|---|---|---|
|
Dec. 31, 2021 |
6,730 | 385 | 19% |
|
Sept. 30, 2021 |
6,525 | 336 | 20% |
|
June 30, 2021 |
6,335 | 328 | 68% |
|
March 31, 2021 |
6,142 | 298 | 16% |
Data source: Company filings.
The company has been doing a good job of steadily growing its installed base. In the second quarter (ended June 30, 2021), the high year-over-year increase in procedures was due to a resumption of more normal hospital activities (vs. a year earlier when lockdowns were in place during the early stages of the pandemic).
There's a lot to like about the business beyond just the potential long-term growth. Intuitive has high gross margins of around 70% and its net income in 2021 totaled $1.7 billion. That amounts to 30% of its $5.7 billion in revenue (which was up 31% over the prior year). A growing business that's also generating high margins is what makes this an attractive stock to buy.
The only item I'm not fond of is the stock's price tag. At a forward price-to-earnings ratio of 57, the stock isn't cheap. Although its multiple is slightly lower than health tech company Veeva Systems, which trades at 63 times its future earnings, it's still a hefty premium to pay at a time when growth stocks have been struggling. Although it's a tempting buy, Intuitive's stock could be a much better bargain if there is a significant crash in the markets.
2. Beyond Meat
Another stock I'm keeping a close eye on if the markets continue to go south is food company Beyond Meat. Its alternative meat products are attracting the interest of many big-name companies, including McDonald's (it recently launched the McPlant burger in multiple test markets), PepsiCo (the two businesses have a joint venture), and Yum! Brands (KFC recently launched products containing Beyond's chicken).
However, despite these positive developments, there are some risks with the company. Beyond Meat is unprofitable, its gross margin is around 28% of revenue, and it has burned through cash in each of the past three quarters.
For that risk, the stock needs to trade at more of a discount. And while it has fallen 64% over the past year (even as the S&P 500 climbed 20%), it still trades at nearly nine times its revenue, which is slightly more than McDonald's stock and over three times as much as restaurant chain Wendy's.
Beyond Meat looks like a promising long-term growth investment, but without more of a discount to compensate for the risk involved, it's a stock that is worth monitoring but not buying just yet.
