As the year draws to a close, it's as good a time as any to review one's investments and consider adding more money into the stock market. The goal shouldn't be to take advantage of the January effect -- the tendency equities have to rise early in the year. These market trends are short-lived, so as usual, it's better to focus on those companies that can perform well in the long run.
Two great examples in the healthcare sector are Abbott Laboratories (ABT 0.63%) and Intuitive Surgical (ISRG 0.59%). Let's investigate why you can safely put your hard-earned money into both stocks this month.
1. Abbott Laboratories
Shares of medical device specialist Abbott Laboratories have failed to keep pace with the market this year. There are several reasons, one of which is that its coronavirus diagnostic revenue continues to fluctuate. Abbott's total sales haven't been consistently pointing up as a result. In the third quarter, the healthcare giant's revenue of $10.1 billion decreased by 2.6% year over year.
Still, this is hardly a serious problem long-term investors need to worry about right now. For one thing, Abbott's coronavirus-related sales allowed it to keep its financial results afloat in the earlier days of the pandemic, when the rest of its business experienced severe disruptions. And now that this unit is no longer a reliable and consistent moneymaker, the rest of its operations are doing just fine.
In the third quarter, Abbott Labs' total sales, excluding its COVID-19 products, recorded an organic year-over-year increase of 13.8%. Medical devices performed particularly well, with the segment's revenue up by 16.6% compared to the year-ago period. Abbott boasts several key growth opportunities here, none more important than its continuous glucose monitoring (CGM) franchise, the FreeStyle Libre.
CGM systems have gained considerable traction -- and continue to do so -- because they allow diabetes patients to better keep track of their blood glucose levels. Abbott is also looking to continue innovating in this field. It recently acquired Bigfoot Biomedical, a company that develops insulin management systems. Abbott hopes to combine its expertise with that of its new subsidiary. Of course, this merely represents one of the company's growth areas.
Abbott's stock is also attractive due to its excellent reputation in the healthcare industry. A brand name that inspires confidence and trust, especially in matters of potential life and death, is an excellent economic moat. Abbott is also an outstanding dividend stock. The company is now on its 51st consecutive year of payout increases, which makes it a Dividend King.
All this makes Abbott Laboratories a top stock for income-seekers and long-term investors looking for steady and reliable returns.
2. Intuitive Surgical
Intuitive Surgical has performed more or less in line with the broader market this year despite lingering issues related to the pandemic, which also slowed down its business. However, Intuitive continues to make headway in the robotic-assisted surgery (RAS) market, where it is the undisputed leader. In the third quarter, the company's revenue increased by 12% year over year $1.74 billion.
Importantly, the number of procedures performed with its crown jewel, the da Vinci surgical system, grew by 19% year over year. This metric also registered a compound annual growth rate of 17% between the third quarters of 2019 and 2023. While Intuitive's procedure volume dropped early in the pandemic, this merely created a backlog of surgeries waiting to be performed. The company more or less caught up once things started getting back to normal.
Over the long run, we should see similarly strong procedure growth because the RAS market is deeply underpenetrated; fewer than 5% of procedures that could be performed robotically currently are. Much of Intuitive Surgical's revenue comes from the instruments and accessories it sells along with its da Vinci system. This number rises along with procedures, which means the company's revenue will continue increasing.
That's especially the case since Intuitive Surgical benefits from high switching costs. The price of a da Vinci system (between $0.5 million and $2.5 million), added to the time and cost of training medical personnel, makes it hard for hospital systems to switch to another RAS machine easily. That's why Intuitive Surgical continues to grow its installed base. It ended the third quarter with 7,364 installed da Vinci systems, an increase of 13% compared to the year-ago period.
Thanks to its leadership in this high-growth niche of the healthcare sector, Intuitive Surgical should continue delivering competitive returns for a long time.
