Intuitive Surgical Becomes a Sorry Story Stock, Red Flag

Story stocks like Intuitive Surgical (ISRG) often soar to $350 a share or better from less than $5 in a few years, making the stock pickers who got in early look like geniuses. But by the time they top out, as ISRG did at $357.98 last spring, story stocks become groupie stocks. Their groupies never recognize the danger signs when they show up as they always do.

ISRG's problems became pretty obvious last spring, but some groupies are still hanging on and calling the stock a buy. After announcing that its 2008 results would disappoint investors, ISRG closed Thursday at $110.54 a share. Several firms downgraded the stock to a hold from a buy. On Wall Street, "hold" means "sell."

Now, a lot of stocks are down 20% to 50% from their 52-week highs, but only a few are down 69.125% from their 52-week highs, which is where ISRG is. While I've written about ISRG 14 times, I first questioned its value on March 1, 2008. It looked so over priced. But the first real warning that ISRG's fundamentals were changing came on April 11, 2008, when GE reported that its medical products division was hurting because hospitals were being hit by the financial crisis. "GE’s executives said they think funding will continue to be a problem for clinics and hospitals." I suggested that this could portend trouble for ISRG and other medical device companies. Since then, the financial crisis has gotten worse, and ISRG's stock price has steadily worked lower.

At this point, the financial crisis is still severe. Hospitals and clinics still are hurting and curtailing capital expenditures. Patients still want their surgeons to use ISRG's robot, which increases their precision and, in some studies, produces better outcomes for patients. The payback on the $1.3 million device for hospitals is relatively slow, however, making it a less than must have item for hospitals and clinics these days.

ISRG's warning sends up a red flag for other medical device makers, just as GE's results last spring sent up red flags for owners of ISRG. Lesson relearned: If you're riding a "story stock," don't become a "stock groupie." Pay attention to the stock's charts. And even more important, watch its industry and the overall market and economic environment. Even story stocks become sorry stories in a bear market.

One-year daily charts for ISRG, GE, DIA, SPY and QQQQ are here. Their point and figure charts are here. Click on a chart to get a gallery of charts like this one for ISRG.

Disclosure: I don’t own ISRG or GE.

Comments

[athena:]

HIFU is coming. FDA will approve it soon.

Jan 09 12:05 PM

[ISRG buyer:]

I guess if you are short term trader (and I mean one who thinks in terms of weeks, months or a year or two) then ISRG's stock at much higher levels had less margin of safety. At today's price you have a greater margin of safety. Their fundamental business and value offering is sound. One thing a company cannot change is a credit crisis or crashing economy. However despite the fact they can't change it we are all quite sure it will recover. We just don't know if that will be in 6 months or 5 years...but it will.

So what does an investor do as opposed to a trader? As Buffett says if you are a net buyer of cheeseburgers over your lifetime you want the cheapest price of cheeseburgers. So the price of ISRG is down right now so you buy. If it goes down you buy more. If in 10 or 15 years ISRG is $1000/share or more (remember the power of compounding) then the buys at 50, 100, 150, 200, 250 all look pretty good.

Remember one of buffett's greatest purchase was the Washington Post. Down over 60% for him after he bough it. Sound familiar? He sat on a loss for 3 years. Well in the end it was a 127 bagger. This is the difference in thinking about business ownership and management over 5 or 10 years plus as opposed to worrying about a stock chart wiggle over months or a couple years.

Jan 09 12:20 PM

[Donald Johnson:]

Buyer:

If you're not an ISRG loser, having bought at $357.98 or somewhere above $110, you might want to take a look at the stock. But it looks like dead money at the moment while other stocks look much more attractive, which isn't saying much.

Any time the stock rallies, speculators with losses will sell into the rally, taking their losses. This selling will make it difficult for this stock to stage a sustainable rally for a long time. Thus, smart money, including money taken in by people smart enough to take their losses on ISRG, will go into other investments or speculative endeavors.

If you have a 10- to 50-year time horizon, like Buffett, you can play his game. Few people or institutions can play his game because of their different goals. Instead of sitting with WaPo for 3 years, Buffett would have been smarter to buy a stock that doubled in that period.

I mean, you know, Buffett is such a genius that he "invested" in GE, GS and NRG last year and only 4 of his stocks rose last year.

Jan 09 01:14 PM

[raytayzmd:]

...oh, wow!...you were bearish about a high priced stock before the market crash and now, by gawd, it's down which just goes to show you were right all!!...everybody, come on now, let's all stand up and give ol'Don a big round of applause for being so incredibly astute!...hell, I may even write and ask for his autograph!

Jan 09 06:07 PM

[decoflair:]

I, too, believe your insights on ISRG at these lower level prices is shortsighted. Heck, many stocks are significantly lower since spring. Yes, ISRG was over priced over the past year, but you cannot make that argument now. Rather, you deserve a pat on the back for the call that ISRG was too hign at $357, but a Bronx cheer for failing to see the potential upside for this stock and company over the next few years.

Jan 09 06:14 PM

[Donald Johnson:]

I don't think there is much visibility for ISRG or any other company for the next six months or five years. The economic outlook is so uncertain. We don't know what kind of health insurance markets we'll be dealing with. If we have a nationalized health insurance market, I'd expect price and access controls that would affect medical device makers.

Politicians and bureaucrats don't care about quality or patient satisfaction. They care about budgets and taxes, and they're ruthless when trying to reduce costs. So while would want to have the ISRG device used for certain kinds of surgery, I'm not optimistic that Medicare would pay for it.

The fundamentals are just too uncertain for anyone to predict ISRG's future, in my opinion.


On Jan 09 06:14 PM decoflair wrote:

> I, too, believe your insights on ISRG at these lower level prices
> is shortsighted. Heck, many stocks are significantly lower since
> spring. Yes, ISRG was over priced over the past year, but you cannot
> make that argument now. Rather, you deserve a pat on the back for
> the call that ISRG was too hign at $357, but a Bronx cheer for failing
> to see the potential upside for this stock and company over the next
> few years.

Jan 09 10:05 PM

[Donald Johnson:]

Don't worry, I blew it on a few stocks last year, too. They dropped so fast that I didn't cut my losses when I should have. See my writeups on GM, MDR, etc. :)

This is just such a classic case study of a groupie stock I couldn't pass it up. Sorry if I offended.


On Jan 09 06:07 PM raytayzmd wrote:

> ...oh, wow!...you were bearish about a high priced stock before the
> market crash and now, by gawd, it's down which just goes to show
> you were right all!!...everybody, come on now, let's all stand up
> and give ol'Don a big round of applause for being so incredibly astute!...hell,
> I may even write and ask for his autograph!

Jan 09 10:15 PM

[User 278265:]

Donald Johnson (obviously a fake name) is a big fat dildo. I can't believe his amateurish worthless posts actually make it onto the internet. This guy is total trash.

Jan 10 12:19 AM

[oldgoldbug:]

I, for one, am more than grateful to hear from someone who was bearish at the highs, wrote about it and published it so it could be documented, and then has the class to apologize for "offending" someone. I would also at least listen to this person's future analyses as he or she might actually be right again. Thus Don Johnson goes on my watchlist.

One would think big boys and girls doing something as serious as investing their money would be ruthlessly honest with themselves and others so as not to repeat their mistakes. Calling people names really doesn't do much for our opinion of you either User 278265.

Jan 10 02:02 AM

[User 278265:]

This dildo is proud of himself for predicting that a stock declined recently even though 95% of stocks declined recently. Well whoopdeedoo. If you picked a stock out of a hat, chances are it declined recently.

Jan 10 02:20 AM

[User 278265:]

Next, this dildo is going to predict that the sun will rise tomorrow, and when it does, he will pat himself on the back for being right. What a douche bag.

Jan 10 02:21 AM

[User 278265:]

And by the way, check out the dildo's other articles from the past. He has been wrong about many, many stocks.

Jan 10 02:28 AM

[Richard Sater:]

Hospital endowments and capital funds are down 20-30% on average and donations are slowing. Many medical centers have put large purchases on hold until next fiscal year. Smaller hospitals won't be buying a da Vinci anytime soon and larger centers will be content with one.

Jan 10 08:18 PM

[PauvrePapillon:]

Not everyone is putting off capital equipment purchases. Some are moving ahead to acquire state-of-the-art technologies even if they have to cut back in other areas. Here is one hospital CEO with her priorities in order. Of course, it does help that CyberKnife Centers open with a backlog and are immediately profitable for their operators.

Hospital puts off building renovations to buy CyberKnife

Margaret Sabin, chief executive officer at Penrose-St. Francis Health Centers, said, “We are buying a new CyberKnife program for the cancer center. We decided that that program directly benefited patients — it is state of the art technology. But to do it, we had to put off some building renovations. We decided to focus on health care and patient needs — the rest we’ll make do without.”

www.csbj.com/story.cfm...

CyberKnife is made by Accuray (ARAY)

www.accuray.com

Jan 12 12:06 PM