Did you know that healthcare spending makes up more than 10% of the GDP in most developed countries? In the United States, the spending is near twice that amount and accounted for 17.7% of GDP in 2018.
With a global pandemic bringing the healthcare industry front and center, it’s easy to see the potential for companies that are innovating in the medical world. The huge amount of spending is only going to increase in the coming years, which is why investors might want to look at adding stocks in the healthcare industry going forward.
For example, Intuitive Surgical (NASDAQ:ISRG) is a company producing cutting-edge medical technology that is changing the way that surgeries are performed. Here are some reasons why this stock could be a great buy for long-term investors.
Benefits of Robotic Surgery
Intuitive Surgical is a MedTech company that has been a true pioneer in the robotic-assisted minimally invasive surgery field. Although it might seem strange to consider putting your life in the hands of robotics, this is likely going to be the norm for surgeries as the years go by. There are several reasons why robotic surgery is so groundbreaking. Patients can expect more accurate surgery, significantly less pain, lower risk of infection and blood loss, less scarring, shorter recovery, and better clinical outcomes for many cases. That’s why Intuitive Surgical is such a compelling company.
The company’s cutting-edge da Vinci Surgical Systems allow surgeons to perform robotic-assisted minimally invasive surgeries with greater precision thanks to advanced robotics and computerized visualization technology. The system uses tiny wristed instruments that move like a human hand with a better range of motion along with highly magnified 3D high-definition views of the surgical area. Intuitive Surgical has already sold over 5,550 da Vinci robotic systems that have assisted with more than 7 million surgeries to date, and there’s a strong possibility that number increases substantially over the next decade.
The Next Big Thing in Medical Technology
One of the big reasons why Intuitive is worth a look for your portfolio is due to the massive growth prospects of medical technology over the next few years. We alluded to the huge healthcare spend that occurs worldwide earlier in this article, but the market for surgical robots specifically is expected to grow from $6.7 billion in 2020 to $11.8 billion by 2025. That’s a CAGR of 12.1% that could directly benefit Intuitive Surgical since it has already established competitive and technological dominance in the market.
Although there could be competitors in the future, investors should understand that there is a high cost of switching robotic surgery platforms. That means this company could have loyal customers for years to come. The da Vinci systems are certainly not cheap, with the average selling price excluding operating leases and lease buyouts in 2019 coming in at $1.52 million. The high price tag means strong sales revenue for the company as more hospitals explore robotics, but Intuitive also has a leasing program that allows hospitals to obtain the platform without paying the entire price upfront. This is a smart move for the company, as it can lead to more sales and recurring revenue streams as the industry continues to grow.
Pandemic Impacts
We know that Intuitive Surgical has a compelling business model and a cutting-edge product, but investors should understand that COVID-19 is hitting the company’s earnings hard. A lot of this has to do with a sharp decline in elective procedures. The company generates revenue from the sale of its instruments along with accessories used in every surgical procedure. There was a 19% year-over-year decrease in the amount of worldwide da Vinci procedures in Q2, which was a leading driver of a 22% year-over-year revenue decrease in Q2.
That said, we should be seeing an uptick in elective procedures in the coming months as the pandemic starts to subside. Although Q2 was not a strong quarter for the company at all, its shares have risen over 12% since the earnings report was released. That tells us that the market is pricing in a sharp recovery for the company’s revenue, but keep in mind that there are some near term risks related to elective procedure volumes and financial pressures on hospitals.
The Bottom Line
This is a cutting-edge company that is completely changing the way that many surgeries are performed. It’s innovative medical technology and competitive dominance in a growing market make it worth a look for your portfolio. Keep an eye out for any significant dips if you are interested in adding shares, as the stock is likely due for a pullback soon.