Today’s ad comes in from Louis Navellier, so eager to get your subscription bucks that he’s moving up his calendar … here’s how the latest ad for his Blue Chip Growth newsletter opens:
“Tonight I’m publishing the name of my June Stock of the Month, 15 days ahead of schedule…”
Just like having a time machine, right? We get next month’s stock early, how can we lose?
If you’re not familiar with Navellier (which seems unlikely, given his ubiquity), he’s a mostly quantitative growth lover — he has a system that weights earnings growth, sales growth, analyst estimate upgrades and surprises, and similar data points and picks out stocks that sometimes tend to look really expensive but that are growing very quickly. Some of them work out spectacularly well, particularly in bull markets, and obviously some of them don’t (often when his teaser picks crash it’s because the huge earnings momentum was peaking just as he teased the stock).
And he tells us that he has “just found” another winner … here are the clues he provides:
“I’ve just found another Blue Chip Growth winner that matches the profit profiles of our three biggest winners: EMC Corporation (+477%), América Móvil (+397%) and Apple (+385%).
“The company not only just reported 203% earnings growth AND delivered a 23% positive earnings surprise but also is on track to more than double its 12-month 133% gains—thanks to a mind-boggling 24% profit margin and 74% revenue growth.
“Plus, our new research shows this company will be one of the biggest profit takers of health reform, as millions of previously uninsured Americans will drive sales through the roof due to the company’s documented life-saving cancer treatments.
“As a result, when this company’s next quarterly earnings are released, the company should not only surpass its 203% earnings growth by a country mile…
“…but could also be our next EMC Corporation, América Móvil or Apple which more than tripled my readers’ money in the months following after quarterly earnings announcements.
“Our research shows the breakout beginning June 1st.”
He also goes on to say that “there’s no way you can lose here,” in big bold letters… but of course, that doesn’t mean he’ll pay you back if he’s wrong about this pick, it just means that he’s continuing to offer the same kind of six month guarantee that he has usually offered, giving your subscription money back if his recommendations don’t “deliver as promised.”
And I suppose it goes without saying that since you’re learning about this pick here, for free, he won’t be paying you anything. And to be extra clear, your friendly neighborhood Stock Gumshoe makes no promises of any kind, other than that I’ll try my best to edify, entertain, empower and enchant my most delightful readers (and, of course, I won’t take advantage of you by trading around the stocks I’m writing about).
So who is this stock? Well, we toss that 203% earnings growth and the nice earnings surprise into the Thinkolator, turn the knob to “health care and cancer treatments,” and we’re left with:
Intuitive Surgical (ISRG — click here to see the free instant analysis from Marketclub, one of my advertising partners … the trend is a lot worse than I would have guessed)
A stock I got scared out of a couple years ago at a far lower price … not that I’m bitter. And, just to be clear, this has been a Navellier favorite for many years (I think my most recent note for a Navellier tease of ISRG was about 18 months ago and the shares have more than doubled since then, so it’s hard to complain about that one) — and his love for the surgical robot is not surprising since it has been among the top half dozen growth stocks in the market for ages.
But to the notion that he’s “just found” this recommendation we can say, “phooey.”
And while it’s not as expensive as some of his other favorites like BIDU (another tumultuous growth stock that outgrew me, to my lasting torment), it’s right up there with stocks, as he noted, like Apple that grow so fast and keep coming up with new growth avenues that they never get as cheap as some of us might like.
Intuitive Surgical is the maker of the da Vinci surgical robot system, and they make their big money from sales and installs of new robots and their high-margin ongoing revenues by selling service contracts, training, and parts and accessories for those bots which use surgery attachments that are effectively almost “disposable” because they’re rigged to only work for a set number of surgeries (the much loved “razor and blade” business model).
Their first fortune was made on the back of prostate surgery, a field the robot now dominates, and savvy consumer marketing which has patients demanding robotic surgery, whether or not there’s any evidence that the expensive machines actually do make a substantial difference in most types of surgeries (the debate about this continues, particularly in tough budget times for hospitals — they need to have the robot, not least for marketing and doctor recruiting purposes, but some of them resist and fail to see the real value). This is basically just what I remember from my days as an ISRG shareholder, which saw their last sunset a while back, so there may be updated info that I’m not aware of or sharing here.
Still, they continue to knock the ball out of the park — and good thing, because expectations are extremely high, the few times in past years when ISRG earnings didn’t measure up to expectations brought some significant beatings for the stock, but over the past four quarters they’ve consistently beaten analyst estimates. And yes, the last “beat” was by a substantial margin (Navellier teases 23%, I see 26%, but different publishers use different analyst estimate averages so that’s reasonable). The growth in earnings is an exact match for the tease, at 203% in the last quarter, and the profit margin and revenue growth are also exact matches.
The stock at about $330 is now within shouting distance of its all-time highs (reached just a few weeks ago), but it has also been up in the $300+ area before and collapsed dramatically down to below $100 in the credit crunch — that was when it started to sound crazy that hospitals might keep buying million-dollar machines, what with the world coming to an end and all. Analysts expect them to earn a little over $10 in 2011, giving them a forward PE in the low 30s, but on current 2010 numbers (analyst estimates of $8.46, after almost all the analysts bumped numbers up for the year) they trade at a PE of just about 40. That matches up well with the past five years of growth at just about 40% a year, though analysts do also see the next five years coming in at about 25% annual growth (how they can guess those numbers is beyond me, of course, but the large installed base — now about 1,500 machines in use — should ensure many years of solid growth in services and parts). They seem to be having some significant success in breaking into new surgical areas with some good numbers to replicate their success in prostatectomies, with particular promise in gynecological surgeries and mitral valve repairs, so it’s hard to imagine what the growth ceiling might be.
The floor, though, can come up fast if you do hit that ceiling — I don’t have anything bad to say about ISRG, but it’s priced for substantial growth and the revenue tends to sometimes be “lumpy” if system sales tail off for a quarter, which sometimes makes investors nervous, but that’s generally the case with most of Navellier’s favorites and with high profile growth stocks the world over.
Oh, and I have no idea what research shows the stock “breaking out” now, or why the breakout would begin exactly on June 1 — their next major event will be their earnings release on July 14, but of course these kinds of high-momentum stocks can make big swings at almost any time.
If you’ve a yen for ISRG, or a fondness for other rapid growers in the Navellier mold, just let us know with a comment below.
And Navellier’s record of reviews is pretty spotty — perhaps in part because lots of them came in following a very bad year for growth stock pickers, so if you’ve ever subscribed and want to share your opinion about Blue Chip Growth please click here to illuminate us (or see what other investors thought) — thanks!
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