Intuitive Surgical: Glamor at a Crossroads

Intuitive Surgical (ISRG) is among the strongest of a group of stocks known to many as speculative growth leadership. Leadership of this type is defined by strong relative price strength and strong earnings and sales growth driven by dynamic new products and services.

Bull markets are lead by groups of these stocks, also known as glamors. The trading action of these names is the single best indicator of the health of the general market. Intuitive Surgical's glamor peers include Apple (AAPL), Google (GOOG), Baidu (BIDU) and Research in Motion (RIMM).

• All of these companies show quarter after quarter of EPS growth well north of 25%.
• Consensus estimates for future EPS growth are continually increasing for each.
• They all show zero debt.
• They all show ROE above 17%.
• Shares of each have outperformed the general market by hundreds of percent.
• They all produce dynamic new products and services.

Review the fundamentals and trading action of names such as Microsoft (MSFT), Walmart (WMT) and Qualcomm (QCOM) before their massive historical price gains. They match the data points I have outlined above.

Each of these names is consolidating in a healthy fashion. Observe Intuitive Surgical's current price / volume pattern. Intuitive Surgical's chart is healthy. A break to new price highs on volume above 2.5 million shares would produce a powerful buy signal.

Until this signal is produced, however, I would avoid Intuitive Surgical and hold cash or small positions in other glamor names moving to new price highs on heavy trading volume.

Disclosure: Author holds positions in some of the above-mentioned securities

Comments

[borisb]

advocating paying more then 13% above todays prices is hardly useful!

[Vanoo]

Every time an analyst report has caused ISRG to drop, I have loaded up on shares (as I just did a few moments ago) and tripled my money in just over 12 months.

Throw your charts away and consider the following:

An aging population is causing a rise in surgical procedures, coupled with concern over medical rising costs. Both good for ISRG.
ISRG is currently certified in only a few areas - many more to come.
Great management.
Razor and razorblades business model.
No competition on the horizon - HUGE first mover advantage.
They have beaten the analysts' expectations EVERY QUARTER for two years.

Since ISRG has an especially tight-lipped corporate communications policy, analysts take the "safe" approach to protect themselves when they rate this company. After ISRG announces quarterly earnings and the stock skyrockets, they will all fall in line and trumpet its value for a couple of months until they get scared again. Repeat cycle.

I genuinely love easy money and thank the analyst community for their dedication to providing it to me with their shallow thoughts on ISRG.

[Vanoo]

Hey Stephen,

Thanks again for posting your insightful thoughts on ISRG. As I mentioned above, I added another batch of shares right after your negative comments (and the stock dropped to $303) and am now happily watching it climb back up (currently at $317 with a bullet).

Up 4.6% in 48 hours. Nice call.

Burp...