The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

30 July 2008

A quickie update re ISRG

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/ISRG. 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/ISRG 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/ISRG.
-- David M Gordon / The Deipnosophist

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