Intuitive Surgical, My Strongest Performer, Richly Valued
In summer 2010 I read me some Philip Fisher and realized I needed to get away from pure "value" investing. My first purchase was ISRG, which I first bought around $286/share, and added to in December of that year at $255/share. I then added in July 2011 at $365ish/share, also following a Philip Fisher rule, which I paraphrase as, "don't be afraid to add money just because a stock has gone up, if you still think it has great growth prospects.
(As stated many times, all of my CAPS picks are real money picks, I note new purchases in the comments under each pick, when I sell out entirely I remove the CAPS pick. My CAPS picks are the only stocks I own, and every stock I own is noted in CAPS.)
I still think ISRG has great prospects. But in the wake of this quarter's nice earnings report, and the huge pop this stock has had over the past few months, I re-ran my discounted free cash flow analysis and thought a bit more about it.
You can find my post on my blog here. You can find my discounted cash flow spreadsheet in Google docs here.
Basically, to think you are paying fair value, you need to assume ISRG can grow FCF at a 21.5% clip or likely better for ten years. To think you are getting it at a 20% discount to fair value, you need to believe ISRG can grow FCF at a 25% clip for ten years. Yowzers. I'm not selling, I think it's very possible ISRG can do this. But I think this thing has been in the hands of momentum traders all Spring, and I think a pull-back is likely.
Focus on risk, not return. The risk of a large pullback is higher than the likelihood of a major gain from here, in my view, at least within the next year.