Intuitive Surgical and Costco are raking in profits, and their share prices are rising.
The Nasdaq Composite index first entered the current bull market in December 2022, and is up by about 20% since the start of 2024 alone. While that bull market run has injected life into shares of many companies across a range of sectors, it’s also important to remember that the stock market is cyclical.
Down periods are an inevitable part of a long-term investor’s journey, but the U.S. market has historically had a remarkable habit of eventually recovering from these stretches and rising upwards with the passage of time. The key principle for benefiting from all market cycles is to avoid ill-advised strategies like market timing and focus on consistently investing your capital in great businesses.
The next time you’re shopping for stocks to hold for the long run, don’t overlook these two top Nasdaq names.
1. Intuitive Surgical
Intuitive Surgical (ISRG -0.78%) develops and sells robotic surgical systems to hospitals and other healthcare providers around the globe. A single sale of one of its flagship da Vinci surgical systems can bring in millions of revenue, and use cases for these systems range from bariatric to gynecologic to thoracic to cardiac procedures.
Shares have risen by close to 50% since the start of 2024 — an impressive run-up for any company, but particularly a mature business in the healthcare industry. Intuitive Surgical’s financial performance has remained steady and has maintained profitability while consistently generating mid-single to double-digit revenue growth through the years.
Growth did decelerate for a few quarters as procedure volumes fluctuated in key markets in recent years due to the COVID-19 pandemic, but Intuitive Surgical is steadily moving forward from this period.
The good news is, Intuitive doesn’t make most of its money from system sales. It makes even more from recurring revenue, which includes both sales of replacement instruments and accessories for its systems, and also its service contracts for maintaining the systems. The company also leases its surgical systems to medical providers that choose not to purchase them outright.
In the first six months of 2024, Intuitive Surgical reported profits under generally accepted accounting principles (GAAP) of $1.1 billion on revenue of $3.9 billion — up 37% and 13%, respectively, from the first half of 2023. System sales accounted for only $866 million of the total revenue. The rest came from recurring revenue sources — $2.4 billion from instruments and accessories sales, and $631 million from services.
Intuitive Surgical still controls the lion’s share of the global surgical robotics market, though newer competitors have entered the space over the years. Its dominance and robust financial position have given it sturdy footing in a time when rising medical costs and macroeconomic factors are still impacting the historically resilient healthcare industry. If you’re looking to make a three- to five-year (or longer) investment in a healthcare stock, Intuitive Surgical looks like a worthy contender.
2. Costco
Costco (COST 0.69%) faces the same difficult consumer spending landscape that other retailers do now. However, its membership-based model, diverse product lines, and the capacity to cater to a multitude of essential consumer needs have enabled it to continue its track record of success, even in the current environment.
Costco purchases many of the products it carries in its warehouses in bulk directly from suppliers at competitive prices, and it passes those savings down to consumers. Its margins on product sales are thin, but its secret sauce — membership fees — makes up for that, providing it with considerable and fairly consistent profits.
In the first three quarters of its fiscal 2024, Costco reported total revenue of almost $175 billion. That figure was up 7% from the year-ago period.
Breaking revenues for those three quarters down by source, $171.4 billion of Costco’s top line came from product sales, while $3.3 billion was derived from membership fees. Net income for the period (which ended May 12) totaled $5 billion, up 21% from the same time frame in 2023. Membership renewal rates in the U.S. and Canada were an impressive 93%. Currently, 46% of members pay for the more expensive executive tier, and those members account for 73% of its sales globally.
Shares of Costco have risen by more than 35% since the start of 2024. Still, the company trades for a price-to-sales (P/S) ratio of 1.6, while higher than its historical average, isn’t unreasonable. The market is likely anticipating significant future value creation from the wholesale giant.
This is a business with a proven model that keeps its customers satisfied through economic thick and thin, and its balance sheet bears this out. Plus, the fact that most of its profits come from recurring membership dues enables it to maintain razor-thin margins on the sales of the bulk, wallet-friendly goods it’s beloved for.
Costco’s dividend might be icing on the cake for some investors. While the stock yields less than 1% based on current share prices, Costco has increased its dividend by roughly 80% over the last five years alone. Now looks like a great time to scoop up shares of this time-tested company for your long-term investment portfolio.
