Buying and holding growth stocks hasn’t been the most lucrative investment decision lately. With the stock market throwing a bit of a tantrum in the face of rising interest rates, many firms historically trading at a premium have seen their valuations plummet.
However, despite the seemingly high level of short-term pessimism, this volatility may have created rare opportunities to snap up top-notch stocks at discounted prices. This seems especially true for two innovative medical companies in my ISA.
Investing in the future of surgery
Intuitive Surgical (NASDAQ:ISRG) is the global leader in robotic surgery, controlling approximately 80% of the market. Today, 7,544 da Vinci systems are deployed across hospitals and clinics worldwide. This technology is what enables surgeons to perform robot-assisted surgery. And since the procedures are minimally invasive, recovery times and patient risk are significantly reduced.
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What’s more, the firm follows a razor-and-blade business model. It sells its da Vinci machines at low margins to improve affordability. But the growth stock’s real profits are generated from the sale of consumable products that are required to use its technology, such as scalpels.
This approach to doing business not only creates repeat sales but establishes Intuitive Surgical at the heart of a hospital’s supply chain. It helps to build stronger relationships with customers. And with few alternatives to pick from, the company enjoys some significant pricing power.
Of course, this impressive stature hasn’t gone unnoticed. Even after its recent share price tumble, the stock continues to trade at a forward P/E ratio of 47 times! Therefore, the slightest hiccup in results will likely trigger considerably more future volatility.
Paying such a high premium is likely to put off many investors. But considering the US robotic-assisted surgery market is expected to grow by 16.5% every year until 2030, today’s price tag may be relatively cheap, providing the growth stock remains the industry leader.
A non-invasive medical stock
Another technologically-driven healthcare company that’s taken a beating in 2022 is Masimo (NASDAQ:MASI). The firm specialises in non-invasive medical monitoring technology. And its devices are used in hospitals worldwide.
The group’s Signal Extraction Technology (SET) drives the bulk of revenue. It’s embedded into devices that sit on a patient’s finger to detect oxygen saturation in the bloodstream and other critical factors. This is known as pulse oximetry. And there are a lot of competing devices. But most suffer from data inaccuracies due to patient movement and even have a habit of triggering false alarms.
With management diversifying its portfolio into new medical devices, the firm’s overdependence on this product line may soon be over. And with a new medical-grade smartwatch in the pipeline pending regulatory approval, the company is standing at the gates of an estimated $30bn market opportunity. That said, new products are always a risk.
Just like Intuitive Surgical, this long-term potential commands a lofty price tag at a forward P/E ratio of 36 times. And that’s even after shares were hammered into the ground in 2022. Nevertheless, given its impressive track record and continued demand for accurate medical monitoring devices, this growth stock seems like an excellent addition to an ISA.
