Amidst the burgeoning bear market and geopolitical turmoil this year, it’s a tough time to be looking for a place to park your money. But have no fear. There are still plenty of opportunities to make yourself a bit richer in the future by picking the right stocks.
I’ll be proposing two such investments today, both of which are profitable and highly innovative businesses that plan to prosper by cranking out a steady drumbeat of new and better products. Let’s dive in and investigate just how tremendously beneficial their consistent development efforts could be for investors.
1. Fulgent Genetics
As a genetic testing business, Fulgent Genetics ( FLGT 4.69% ) is constantly expanding its repertoire of diagnostics for cancers and degenerative diseases, and as of 2020, it also does coronavirus testing to boot.
In the fourth quarter, it ran 2.5 million tests, spread across its portfolio of 900 different genetic testing panels. And for its efforts, the company earned $251.7 million in revenue for the quarter — and a total of $992.6 million for the year. That sum is 135% more than it made in 2020, which management attributes to higher-than-expected growth in both its core oncology testing segment as well as its coronavirus testing segment.
Considering that Fulgent is strongly profitable and has a scant $28.3 million in debt, it’s safe to say the company is healthy. But because management is assuming that coronavirus testing revenue will fall, it’s expecting to make around $600 million in total revenue this year. And that’s actually one of the reasons this stock is worth considering.
As 2022 isn’t expected to be a big year, Fulgent’s valuation is incredibly cheap. Its price-to-earnings (P/E) ratio is a mere 3.1, which is far below the market’s average P/E multiple of 21.5. Given that the company is aiming to deepen its nascent penetration of the Chinese market for genetic testing, the next few years will likely see massive growth in its core business.
Farsighted investors can take advantage of the near-term doldrums to set themselves up for long-term success.
2. Intuitive Surgical
If there’s one category of product that screams “innovative” to me, it’s robotics. On that note, Intuitive Surgical ( ISRG 2.53% ) makes da Vinci robotic surgical units for minimally invasive operations, and it’s planning to keep building out more and more solutions to operating room problems. With a market cap of nearly $100 billion, it’s one of the largest healthcare businesses in the world, and it’s also a steady growth stock that can find a home in most portfolios.
In the past five years, Intuitive’s revenue has risen by 82% and its net income has grown by 154%. The reason for these successes is its razor-and-blade business model, which starts with hospitals purchasing a robotic surgical suite (the razor). Then they subscribe to maintenance contracts and buy new tool heads and software services (blades) to expand the robot’s capabilities over time. And that’s why an estimated 75% of the company’s revenue is actually recurring.
What’s more, this model sets Intuitive up to get a consistent return on its research and development (R&D) spending, which was $671 million against total revenue of $5.7 billion in 2021. Since 2016, it has launched eight new advanced instruments, each of which entails a growing stream of revenue as customers adopt them in their surgical practices.
Getting new surgeons on board with the da Vinci system and new tool heads is a major undertaking, and the company has created a training program for the task. Critically, because of the time and effort it takes hospital staff to learn to work with the robotic surgical suite, there’s a built-in customer retention mechanism for the business. Therefore, each new da Vinci system installed tends to lead to significant income for Intuitive down the line — and there are already more than 6,800 units installed worldwide. And that’s yet another reason to purchase this stock.
In the next few years, the company plans to continue its expansion into new surgical specialties as well as into new markets outside of the U.S. While it might not grow rapidly overnight, the fact that so much of its revenue is recurring and safe from competitors means that this stock reliably snowballs in value over time — and for investors, that’s even better than when a company is super innovative.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.