2 Reasons Barron's Is Wrong About Intuitive Surgical

Private requests overwhelm my email inbox to comment on the BARRON's article re Intuitive Surgical (ISRG). (Well, okay, a whopping two requests.)

I have never figured out why BARRON's does its typical hatchet jobs, which they view as investigative journalism, especially re growth stocks. But it does, so I use articles such as this one as a mechanism to buy on short term price weakness investment opportunities I favor long term.

That said, the article is about as even-handed as BARRON's has published, without being mealy-mouthed. The author is fair, and considers what is known, and then predicts (negative) change in those factors. That is an approach I do not favor. If valuable, then where were the BARRON's articles that clamored in favor of the company and stock, especially over the past 3-4 years? BARRON's is renowned for its negativity, not for the quality of its insights.

Some specific items...

1) "Patients have less bleeding and scarring, and can get back on their feet without a long, expensive hospital stay." Really, what is the value of this truth? The demand cycle for the da Vinci comes right now from medical suppliers (hospitals, doctor groups, etc) -- what happens when prospective patients learn of the da Vinci, and seek doctors who offer that option? If you are a supplier, you had better buy now to stay ahead of the cycle, or lose patients to competitors.

I believe Intuitive Surgical, the company, lies somewhere between Points B and C of its S Curve, and even when it hits the back end of the curve, who is to say it will not grow to E rather than fall toward D, as the BARRON's author speculates? Of course, most companies fail at Point C, and enter the decline phase, but new products, new management, even new technologies put the damper on this possibility. During the transition, though, a stock still could rise to new all time highs and higher valuations, even while the rate of growth slows. A stock advance in that environment would occur also at a slower rate of change.

2) "The volatile stock has fallen as much [~25%] twice this year already, as it changes among momentum investors' fickle hands." Oh, brother, yet another person for whom chart patterns leave him (or her) gasping for oxygen. So frightening the 25% share price decline (~$350 to $250), but which is akin to a $35 stock declining to $25. Guess what, a decline of this magnitude occurs all the time. Place the decline within context, however, and you might arrive at a meaningful notion: that the decline could continue even lower.

Such is not the case with Intuitive Surgical. Although still mired in its base, it is a base; in fact a high level consolidation, to be precise. (Check this blog's archives, if you have interest in understanding this particular pattern.) It's all in the chart, sorry to say; a truth most investors fail to grasp, or even accept, Bill Alpert included. The two $100 declines proved to be buying opportunities, as I discussed then; at least to date.

The shelf life for this BARRON's article will expire when Intuitive Surgical closes above $320. And when it should close above $360... Well, that ushers in the truth of the pattern, S Curves and high level consolidations.

Full Disclosure: Long Intuitive Surgical.

Comments

[jasphoto:]

The Barrons article misses 2 points (at least).
1. Upgrades - Just this quarter ISRG sold 6 upgrades and from my understanding they resold the returned machines at close to normal prices.
2. Additional Procedures - The barrons writer does not see any additional surgeries that can currently or in the future be performed by DaVinci or DaVinci 2/3/4.

Think of where Intel would be if no one ever upgraded a PC and gone are the days when ONE pc in a home was wishful thinking.

2008 Jul 31 12:18 PM

[Justin Strauss:]

I agree.THE FACT is the ISRG equipment is being succesfully used in many other types of surgery.Cardiac,vascul... too many others to even mention.Isrg's success has only broken ground on all types of surgery.As they Get FDA approval and Docs get qualified,the SKY is the limit World Wide.They have patent protection for at least 7 years.+
What do you think of open heart OFF PUMP with Cardica's stapler? How big is that market?strafly

On Jul 31 12:18 PM JASPhoto wrote:

> The Barrons article misses 2 points (at least).
> 1. Upgrades - Just this quarter ISRG sold 6 upgrades and from my
> understanding they resold the returned machines at close to normal
> prices.
> 2. Additional Procedures - The barrons writer does not see any additional
> surgeries that can currently or in the future be performed by DaVinci
> or DaVinci 2/3/4.
>
> Think of where Intel would be if no one ever upgraded a PC and gone
> are the days when ONE pc in a home was wishful thinking.

2008 Jul 31 12:36 PM

[genital herpe:]

isrg long, but not much of a market in cardiac... just too damn hard for surgeons to use it. every time our surgeons use it, they end up converting to open... after a while, they just got tired of it and stop using it. maybe if you are the babe ruth of cardiac surgery, the davinci is for you... but for the average players, no way.

2008 Aug 01 12:22 AM

[speculari:]

Yeah, the market in cardiac must really be tough for those "old" surgeons cracking sternums with the old Black & Decker and then hauling away on retractors with the tried and true block & tackle!
Too bad for their patients as well! I would encourage any cardio-thoracic surgeon who views himself or, herself as "average" to get the hell out of the discipline & go up to Maine where I can reccomend a Fire Department where the motto is "We haven't lost a foundation yet". I'm sure they can find a place there!

2008 Aug 01 12:31 PM

[tb4850:]

maybe you surgeon's are dummy's


On Aug 01 12:22 AM genital herpe wrote:

> isrg long, but not much of a market in cardiac... just too damn hard
> for surgeons to use it. every time our surgeons use it, they end
> up converting to open... after a while, they just got tired of it
> and stop using it. maybe if you are the babe ruth of cardiac surgery,
> the davinci is for you... but for the average players, no way.

2008 Aug 10 09:29 AM

[rmiers1:]

Barrons is just being Barrons. This once cutting edge financial tool is in the pockets of the bears. O yes, herpes fella, those surgeons who cannot learn the best for their patients, should not be permitted to. Let them practice their third world medicine in the third world.
Barrons!! You should rethink your trade area, It ain't selling here.

2008 Aug 16 11:32 PM

[applesauce:]

Like all new devices it will improve. Remember the first cell phone? would you like to carry that all day long?
New improved upgrades will come and less skilled doctors will be able to use. Listening to Barrons 25 years ago about computers not being mainsteam in the future is similar to their lack of foresight.

2008 Aug 19 10:13 AM