Volatile markets come and go, but great companies stand out above the rest and can continue to enrich investors over the long term. While the possibility of a recession still weighs heavily on the minds of many investors of all ages and experience levels, companies with resilient underlying businesses and durable paths to sustain and build upon their growth stories can survive any near-term storms.
Here are two such promising businesses to consider adding cash into as you build a diversified investment portfolio.
1. Intuitive Surgical
Intuitive Surgical (ISRG -1.69%) is a household name in the world of surgical robotics, an industry that is continuing to see steady adoption by medical providers around the world for both minimally invasive and more invasive forms of surgery. The potential benefits to utilizing surgical robotics systems in the operating room can be many, from heightened accuracy during the procedure to shorter recovery periods for the patient and even a reduced risk of post-surgery complications.
These surgical systems don't come cheap, and the surgeons and other medical providers who use them must undergo extensive training on these systems. While at first glance, Intuitive Surgical may look like a medical device business only, this merely scratches the surface of its sticky razor-and-blades business model. Certainly, the company generates significant revenue from its surgical systems, with a single da Vinci Surgical System alone carrying a more than $2 million dollar price tag.
Even so, Intuitive Surgical makes even more money from the instruments, accessories, tools, and services it sells along with its systems. From replacement parts for its surgical systems to hands-on training for surgeons to one-stop-shop customer service support and tech repair specialists to integrative software solutions, Intuitive Surgical's highly diversified business model gives it a wide variety of recurring sources of revenue on which it can rely.
The company raked in revenue of $6.2 billion in 2022, while earnings came to $1.3 billion for the 12-month period. Intuitive Surgical also closed out the year with an installed base of 7,544 da Vinci Surgical Systems worldwide, a 12% increase compared to its installed base of these systems at the end of 2021.
The widening use cases for Intuitive Surgical's products and services mean that as adoption grows, its addressable market is growing in kind. In fact, the global surgical robotics market is on track to hit a valuation of more than $18 billion by the year 2032. Intuitive Surgical currently controls more than three-quarters of all revenue generated in the global surgical robotics market.
While short-term fluctuations in procedure volumes due to resurgences of COVID-19 in certain markets have affected growth in recent quarters, these non-business-related headwinds will gradually subside. This is a stellar, market-leading healthcare business with a robust history of raking in profits and diverse revenue sources -- all green flags for its long-term growth trajectory that forward-thinking investors would do well to seize upon, even if another bear market appears.
2. Innovative Industrial Properties
Innovative Industrial Properties (IIPR 0.37%) hails from a completely different industry, the much-beleaguered cannabis space. However, not all marijuana stocks are created equal. For risk-resilient investors, quality businesses with a history of profitability and a solid runway to growth can still be found in this industry, and Innovative Industrial Properties is certainly one of them.
While a slowdown in sales and profits, haphazard state-by-state legislation, the impact of the volatile and uncertain macroeconomic environment, and a still-unclear timeline as to federal legalization have all been factors in the particular volatility the marijuana industry has witnessed over the last year, Innovative Industrial Properties has largely separated itself from these trends.
The reason is simple, as this isn't a company in the business of cultivating or selling cannabis. Instead, the company operates as a real estate investment trust (REIT), and it only leases its portfolio of properties to state-licensed growers of medical cannabis.
Moreover, Innovative Industrial locks these clients into lengthy, triple net leases. The average lease length for tenants is 15 years. Plus, the triple net lease structure puts most of the operating costs related to a property on the tenant rather than the owner, which has helped enable Innovative Industrial Properties' steady track record of revenue growth and profits.
The company boasted a total property portfolio of 110 properties across 19 states as of last count, with 100% of its operating portfolio (comprising 108 properties) under lease. Rent collection rates as of the end of February came in at 92%.
Meanwhile, 2022 saw Innovative Industrial Properties record revenue growth of 35% over 2021's final sales figures, while net income and adjusted funds from operations (FFO) jumped by respective amounts of 36% and 34% from the prior 12-month period.
Over the past year, Innovative Industrial Properties has increased its dividend by a whopping 16%, while that dividend currently yields about 10% at the time of this writing.
No stock is without risk, and anyone investing in the cannabis space is going to require a certain level of intestinal fortitude, so to speak. However, the potential of this multibillion-dollar industry remains tremendous. Innovative Industrial Properties' focus on the far more broadly legalized and regulated side of this space -- the medical-use market -- bodes well for its resilience amid the turbulence, as does its business model and lease structure.
Income investors looking to buy into the potential of the marijuana industry without taking on the same risk that a retailer or cultivator may present would do well to take a long, hard second look at this dividend stock.
