Top-Rated Stocks Trouncing the Market

No one has perfect foresight, but let's be honest: The market is full of people who, as Oscar Wilde would say, know "the price of everything and the value of nothing." Far too often -- over the past year especially -- investors have been pitched sensational stock recommendations only to be left high and dry as shares crumble.

With that in mind, I summoned our Motley Fool CAPS community to point out a few four- or five-star stocks that have been going gangbusters in recent months. Some are still bargains; others are getting ahead of themselves.

While not formal recommendations, these three-month bloomers caught my attention: 

Data from Motley Fool CAPS, and Yahoo! Finance as of Nov. 17. 

You can re-run the CAPS screen I used by clicking here.

A closer look at Intutive Surgical
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." So goes one of Warren Buffett's most famous quotes.

There's no doubt Intuitive Surgical is a wonderful company. With rapid growth, scarce competition, and a bulletproof balance sheet, wonderful might be an understatement. But up for debate is whether today's price is fair, if not overvalued.

Shares are up nearly 122% year to date. That's been quite a gift to anyone around for the ride, but now we have to ask what lies ahead.

Start with the basics. Analysts, on average, expect 20% internal growth per year for the next five years. That's incredible, of course, but compared to shares trading at a suffocating 40 times 2010 earnings, you'd be wise to question whether expected growth is enough to justify the multiple shares command. I'll be frank: I seriously doubt it is, and Intutive Surgical is likely in a position where miracles need to happen to so much as justify current valuation, let alone provide attractive returns.

Think of it this way: Here's a rundown of expected earnings for the next few years:

Source: Capital IQ, a division of Standard & Poor's.

Not bad. We'll assume the 20% growth trend continues, giving us 2014 earnings of about $14.50 per share. Now let's say everything goes according to plan (which rarely happens), and by 2014, Intuitive Surgical does actually earn $14.50 per share. Then we'll slap, say, a 25 multiple on the stock -- still quite generous, and reflective of a bright future. That'd leave shares trading at $362 in 2014. Nice. But annualized out, that equates to a roughly 5% return per year for the next five years. Not terrible, but probably a pittance of what investors should expect from a company growing internally at a 20% clip. Tear apart the assumption as you'd like. You'll be hard-pressed to come up with anything very tantalizing.

It isn't unlike what happened to Amazon (NASDAQ:AMZN) after the dot-com bubble: Even though the company strengthened and grew internally, shares floundered for years, only because they were coming off such a high starting point.

Plus, none of that considers the most stubborn facts of life: Crud happens. Things don't always go as planned. Problems arise. Economies falter. Regulations occur. When they do, companies priced for perfection pay a price.

CAPS member Jtweez19 agrees, writing:

Look I love the Da Vinci technology and [Intutive Surgical] has done a great job with it, but this stock is not for the faint of heart. It is extremely volatile. I think it is a buy at $150 and below. I think a stock price of $150 would represent the true value of the business.

Your turn to chime in
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