Well, it didn't drop much, but it did dip below $70 for the first time in a while and I had some cash, so into the portfolio it goes (as with my other recent purchase, it of course dropped a bit more after I bought in ... c'est la vie).
Bought Intuitive Surgical (ISRG) at $69.54 on September 22, 2005.
Intuitive Surgical sells Da Vinci robots, which are the super-expensive high-precision robots that hospitals are using more and more for delicate surgery. Robotic surgical gear like this allows for the surgery to be a bit more precise, which can often mean better results and easier recovery (there's lots of debate about this, so it's certainly not a home run for all kinds of surgery).
And Intuitive sells not just the super-expensive machines themselves, but the necessary accessories and service that go along with such a high-end medical device -- just like in the rest of the medical and surgical world, lots of the tools and Da Vinci attachments are disposable and the more durable ones that can be sterilized still only last through a limited number of surgeries.
So like Imax with movie theaters, the more big-dollar installations the company does (and makes big up-front profits from), the more installed operations there are that require service, maintenance and supplies that they can leverage to maintain an ongoing and growing revenue stream (whether those supplies are surgical attachments and equipment, or Hollywood movies). Like Imax, ISRG owns the technology and will supply all of the necessary goodies at a nice price.
Intuitive is definitely a risk. As I noted when I put it on my wish list, it's pretty freakin' expensive, and became more so when that earnings release sent them up from the $50 range to above $70. But I think we pretty much have to pay up if we want this kind of earnings growth and potential -- sales up almost 100% year over year, earnings growing faster than that, and the installed base of machines continuing to ramp up significantly. We run some significant risks in paying for this kind of growth -- but I think they're short term risks if you believe in the potential of the business. Paying up for growth is nothing new for my portfolio.
If ISRG has a bad quarter this time around or the growth stalls or even slows somewhat, the stock price is likely to drop nearly as fast as it climbed. But they think they've not yet even reached 10% of their potential installed base, and they are the market leaders in an emerging technology with real benefits (not to mention the fact that they are only approved for a few narrow varieties of surgery so far, and I bet that breadth will grow significantly over time) -- so over the next several years, the surprises are much more likely to be on the high side.
I expect to hold ISRG for many years, and if we do see some hiccups in the growth pattern I'll be seriously considering buying additional shares. For now, it's a pretty small position and I'm looking forward to learning more about the company.
I've committed a pretty significant portion of my speculative portfolio to biotech and now, with the addition of ISRG, medical devices. ISRG is a pretty small company, just like the biotechs I'm invested in. Is investing too much in that sector a risk? Probably so, but I think of these as all on the speculative edge of an industry, health care, that is relatively untethered from the arc of the general economy -- these companies could all fail, though I don't believe they will, but it won't be because their industry is hurt by a tepid economy, and therefore this part of my portfolio shouldn't be hurt by the same things that might hurt my other holdings that rely more on consumer spending or other economic factors.
Or at least that's the theory. I guess we'll find out, eh?