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Buying Shares of These 2 Monster Stocks on the Dip Could Be a Genius Move

When investors are dumping their shares, those who pick up quality stocks at a discount come out ahead. That's especially true when the market is souring toward temporarily inconvenienced monster growth stocks with long-term growth potential.

In particular, there are a pair of profitable and growing healthcare businesses that have had a bad year but are likely to recover and keep powering forward over time. Let's analyze why they've struggled and how the future is expected to be brighter.

1. Intuitive Surgical

Shares of Intuitive Surgical (NASDAQ: ISRG) are down 33% this year, but none of the company's strengths are in any way diminished, and that means it's ripe for purchase on the dip.

Intuitive is still growing its global base of Da Vinci robotic surgical units, performing more surgeries with them each quarter, and expanding its top line in the process. In the second quarter, its surgical suites were used in 14% more procedures compared to the prior year, which helped to drive quarterly revenue 4% higher to $1.5 billion. Plus, the volume of procedure growth puts it right on track to meet management's expectations for as many as 15% more operations for 2022.

In the long term, procedure growth from the rising adoption of its Da Vinci robotic suites will continue to drive sales of the company's spare parts, new tool heads, software packages, training seminars, and maintenance services. That's why Intuitive is able to keep increasing its base of recurring revenue every year, which accounted for around 75% of its total sales in 2021.

Given that hospitals aren't about to stop using their surgical technology once they've adapted their operating rooms to use it, it's reasonable to expect that revenue from consumables and services will stay stable even if a recession causes potential new customers to cut back on buying new robotic units.

Still, Intuitive is facing headwinds relating to the pandemic's negative impact on healthcare utilization and provider availability, so buying its shares isn't without risk. And it's true that the CEO and another officer exercised their stock options to sell some of their shares toward the end of July, causing some investors to question the leadership's prognosis for the company's future.

In his comments to shareholders on July 21, however, CEO Gary Guthart was sanguine, stating that customers are still exhibiting strong demand and performing operations with their robots.

2. Illumina

Illumina's (NASDAQ: ILMN) stock is taking a beating this year with its shares crumbling by 42%. Nonetheless, its gene sequencing hardware remains among the biopharma industry's standard toolset, and more than 20,000 of its devices are installed worldwide, with an additional 3,200 placed in 2021. And that's the key to why buying shares might be a brilliant investment.

Much like Intuitive Surgical, Illumina's razor-and-blade business model is a powerful long-term force as customers first purchase one of its gene sequencers and then buy the accessories, reagents, genomic analysis software, maintenance contracts, and training packages that they also need to use it on an ongoing basis.

That means each sequencer sold implies a future trail of revenue that could last for years. Recurring sales of its consumable sequencing reagents continue to make up the majority of its revenue, and there's absolutely no indication that biotechs are going to be less reliant on its sequencing technology in the future.

Constant expansion of recurring sales over time makes Illumina into a bit of a slow-burn investment. Management aims for annual revenue growth in the mid-teens on a percentage-point basis. But growth might be a bit faster than that when new products are launched. In 2021, it brought in more than $4.5 billion in sales, up 39% from the prior-year period.

So why is Illumina's stock struggling if it's continuing to grow and its long-term trajectory is quite favorable? Aside from the market's current distaste for growth stocks, the company is also having some trouble with regulators in the U.S. and the E.U., who are concerned about the monopoly-making potential from its recent acquisition of cancer-testing business Grail. People who buy shares of Illumina today are at risk of their investment taking a hit if regulators ultimately demur from the concessions the company is offering to assuage them.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends Illumina. The Motley Fool has a disclosure policy.


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