For all of the sound and the fury of 2011, the S&P 500 finished at the same level where it started the year. That said, the S&P 500 did gain 10% in the fourth quarter, and that kind of price action has boded well for the first quarter of the following year. Out of 13 times the market has risen by that much in Q4, it has gained even more 12 of those times in the next three months. The sole loss was about as tiny as you can get — down only 0.06%.
So, with those kinds of odds in mind, I’m recommending that you increase your exposure to the U.S. market by betting on Silicon Valley-based Intuitive Surgical, Inc. (ISRG).
Intuitive Surgical is the kind of cutting-edge company that is unique to the United States. Back at the peak of the dotcom boom in 1999, surgical robotics was little more than a medical curiosity. Today, Intuitive Surgical designs, manufactures, and markets da Vinci robotic surgical systems that translate the surgeon’s natural hand movements into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions. Scarcely a decade out of the technological starting gate, da Vinci is now applied to a wide range of surgical procedures in hospitals in the United States, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries.
By creating a unique niche for itself in the market, Intuitive Surgical benefits from a tremendous moat. Any new competitor to the da Vinci system would have to completely re-train hospital staff already familiar with Intuitive Surgical’s system. And that’s not very likely to happen.
Although Intuitive Surgical already has a market cap of $18 billion, it still boasts small-cap stock growth numbers. In Q3, its revenue grew by 30%, with earnings per share (EPS) soaring 43% and beating analysts’ estimates by 10.5%. More importantly, the company’s projected three-year EPS growth rate is about 38%, reflecting its continued expected dominance of the surgical system market. The stock also is technically strong, having just broken out of its recent trading range on Dec. 23.
Intuitive Surgical’s stock is not cheap. But considering the significant barriers to entry into its market and no major direct competitors, investing in the company is a bet that it will continue to expand the roster of robotic surgical procedures and the number of hospitals in which it will become available both in the United States and the rest of the world.
So buy
Intuitive Surgical, Inc. (ISRG) at market today, and place your initial stop at $410. For potentially bigger short-term upside, I recommend the April $470 options (
ISRG120421C00470000).
Portfolio Update
Alexion Pharmaceuticals (ALXN) jumped another 6.15% last week. On Wednesday, Alexion announced it would buy privately held Enobia Pharma for as much as $1.08 billion. It will pay $610 million at the deal’s consummation and up to another $470 million as Enobia’s products reach regulatory and sales milestones. ALXN broke through the $70.00 resistance level it has been testing since October to make an all-time high of $72.25. A move such as this one is usually a strong bullish signal for a stock. Traders returning from vacation may take this stock much higher. ALXN is a BUY. Raise your stop to $62.00.
Bank of Ireland (IRE) fell 5.36% over the past five trading days. Recent news reports show that cash-rich buyers are clamoring to buy assets from European banks. This is allowing banks to recapitalize and clear distressed assets from their balance sheets. This situation may be the first signs of a coming stabilization and recovery as sophisticated purchasers of such large assets tend to buy at, or even create, a “bottom." IRE is currently a HOLD.
National Bank of Greece SA (NBG) gave back 2.94%. Greek Finance Minister Evangelos Venizelos saw encouraging signs in recent financial meetings and noted that the current debt write-down plan for Greek financial institutions is “achievable.” Writing down Greek debt will be a painful step, but once completed, will put financial institution balance sheets in better shape for recovery. NBG is a HOLD.
Companhia de Bebidas Das Americas (ABV) remained flat once again, gaining 0.64%. The Oxen Group recently upgraded ABV and increased its price target. It also is interesting to note that ABV’s stock chart is reflecting the same bullish picture as outlined above for your ALXN position. ABV is a BUY. Raise your stop to $32.50.
ProShares Ultra S&P500 (SSO) gained 0.32%. SSO ended the past week in the same fashion as it has ended the past year — nearly flat. SSO remains unchanged for the week as most professional traders were vacationing, rather than moving the markets. SSO is a BUY.
MasterCard Inc. (MA) gained 0.42% last week. The company recently introduced an interesting new credit program that is benefiting lenders, borrowers, and credit card companies across the board. Borrowers with past-due balances beyond the statue of limitations are allowed to pay off those debts at a greatly reduced rate and get negative credit marks removed. Lenders, in turn, are getting their balance sheets cleaned up. Finally, credit card companies benefit by gaining new credit card users. Look for any dip back to the 50-day moving average as a buying opportunity. MA will pay a $0.15 dividend on Jan 5. MA is a BUY.
Spreadtrum Communications, Inc. (SPRD) fell 1.97% last week. SPRD has been trading just above the 200-day moving average for the past three weeks. A strong rebound has occurred each time SPRD touches this level. Price action such as this is usually a strong indicator of a bullish move to come. SPRD will pay you to wait by issuing a $0.10 dividend on Jan 5. SPRD is a HOLD.
Ford Motor Co. (F) gave back 1.65% over the past five trading days. Ford will pay a $0.05 dividend on Jan 27 for the first time in five years. Ford also will announce earnings on Jan 24. A better-than-expected report may unleash a significant move in this stock and finally break its five month $10/$11 rolling pattern. F is just below its 50-day moving average and is currently a HOLD.