It is always confusing where to start if you are a newbie in the investing world. The stock market is sizzling with exciting stocks, but it is difficult to decide which to choose. If you are an investor whose focus is to improve your wealth over a period of time, growth stocks may be the way to go.
Choosing stocks of stable companies in high-growth sectors can bring some exciting returns. One such name is Intuitive Surgical (ISRG 2.21%), which is taking robotic surgery to another level. My second choice is pot stock Trulieve Cannabis (TCNNF 0.41%).
These companies are rising stars and should not be underestimated. Let's take a look at why these two stocks are great options for a new investor now.
Image source: Getty Images.
1. Intuitive Surgical
With an aging population in the U.S., demand for minimally invasive procedures is increasing, requiring more robotic-assisted surgeries (RAS). Intuitive has established a stronghold in this segment with its da Vinci robotic system that allows surgeons 3D high-definition views and the use of tiny instruments for smooth precision. The company not only earns revenue from these systems but also from disposable instruments and accessories used by the machines.
Many of its peers -- Johnson & Johnson, Stryker, and Medtronic -- have come up with their own robotic systems to give competition to Intuitive, but for now the company is quite secure. Since Intuitive offers training to surgeons on how to use them, shifting to an entirely new system would be time-consuming and expensive. So it is safe to say that the high switching costs will keep Intuitive's revenue safer.
Besides, the da Vinci systems have a good reputation so far, which will be difficult to beat by new systems that enter the market. This is evident from Intuitive's quarterly results wherein worldwide da Vinci procedures increased 19% from the year-ago period. Plus, sales from disposable instruments and accessories used by the machines surged 13% to $843 million from the prior quarter -- driving a total revenue jump of 17% year over year to $1.5 billion. Net profit in the quarter increased 4% to $381 million from the comparable quarter a year ago.
Financially, Intuitive is in a stable position. It ended the quarter with cash and investments of $8.6 billion. It has also grown its free cash flow (FCF) by nearly 121% in the past five years. This will allow the company to spend its capital on more innovative products. Even though the pandemic has slowed down the rate of elective procedures, once this crisis ends, the rate will go up, bringing back the demand for robotic-assisted surgeries. This is one field that hasn't been fully explored yet and has a lot of room for innovation.
2. Trulieve Cannabis
From a small medical cannabis company in Florida to owning 161 dispensaries, Trulieve has come a long way. The company has established dominance in its home state with 112 stores, which will prove to be a competitive edge when the state legalizes recreational cannabis. In limited-license markets like Florida, having such a strong presence will be a challenge for its peers. Since cannabis is illegal federally, state regulators are careful and restrictive of how many licenses they issue and to whom.
Trulieve is also slowly making its mark in other key cannabis markets, such as California, Connecticut, Massachusetts, and West Virginia. Its acquisition of Harvest Health (completed last year) was the highlight of the industry. It allowed Trulieve access to the Arizona, Pennsylvania, and Maryland cannabis markets.
The company continues to report stellar quarterly performance. Its third quarter marked its 15th consecutive quarter of profits, which came in at $19 million, a 7% year-over-year increase. Total revenue in the quarter surged 64% year over year to $224 million.
Image source: Getty Images.
The company expects full-year revenue (out in March) to be in the range of $815 million to $850 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be in the range of $355 million to $375 million. These are impressive numbers for a company operating in a limited legal market.
So one can imagine how high this company could soar once the drug is federally legalized in the U.S. Note that the marijuana industry is still in its nascent stage and will take time to show its full potential. Experts predict the U.S. cannabis industry could be worth $30 billion by 2025.
Wall Street is quite positive about Trulieve's stock with analysts seeing a potential upside of 195% for it in the next 12 months. Currently, the stock is trading more than 50% below its 52-week high, making it a good time to grab it.
Growth is unstoppable for these two stocks
No doubt, growth stocks carry a certain amount of risk. Yet, both Intuitive Surgical and Trulieve Cannabis are establishing strong track records in high-growth sectors. Hence, a little bit of patience and a stomach to bear some volatility should bring fruitful returns.
