Intuitive Surgical Makes Me a Winner!

There's a reason why I picked Intuitive Surgical (NASDAQ:ISRG) as my candidate for Best Stock of 2010. Last night's earnings news just gave me added ammunition, courtesy of what could have been the title of the company's press release: "Move over, prostate -- there's a new girl in town."

This year, the number of hysterectomies performed using Intuitive Surgical's da Vinci Surgical System is on pace to pass the number of da Vinci prostatectomies performed. And that's certainly a good thing.

While prostatectomies using the da Vinci have become the No. 1 choice in the U.S. for treating localized prostate cancer, that success has also caused a slowdown in growth, as the number of potential converts from open to robot-assisted surgery decreases. Intuitive Surgical needed something to take up the slack, and it's found its salvation in hysterectomies, which saw procedures double year over year in 2009.

The company is looking to build on the 205,000 procedures that were performed on its machines last year with a 35% growth in procedures this year. Keep in mind that the company's forecast might be conservative. This time last year, the company was guiding for a 35% to 40% growth in procedures; it ended up with a 51% year-over-year increase instead.

All of this talk of procedures is important because Intuitive Surgical gets revenue from instruments used during the procedures -- a nice "razor and blade" model. In fact, the revenue the company gets from instruments is rapidly approaching the revenue it garners from selling its approximately $1.4 million da Vinci systems. The increase in procedures also helps to sell additional systems, as doctors take up all the time on currently installed machines. In the fourth quarter, 52 of Intuitive's 110 installations went to hospitals that already had a machine.

It's still early days, but with today's jump, my pick for best stock for 2010 is performing better than the finalist, and all of the others for that matter, as I write. Here's a comparison of several candidates:

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

With a P/E approaching 60, Intuitive Surgical isn't for the faint of heart. But if it continues to drive procedure growth year after year, investors will continue to offer it a premium valuation.

Also, I'll be crowned best stock picker for the year.  I can live with that.