Company Highlight: Intuitive Surgical (ISRG)

Intuitive Surgical (ISRG) is an industry leader in the robotic-assisted surgery industry, well-regarded for its da Vinci surgical system. Its technology allows surgeons to perform complex procedures with enhanced precision, control, and visualization, which greatly helps with the recovery time for patients. Its da Vinci system is the most widely used robotic-assisted surgical platform in the world. Its sales are from a mix of da Vinci systems, ongoing sales of instruments and parts, and maintenance fees of the systems. 

ISRG has a strong track record of performance, with a 10-year total return CAGR of 25.0%. In terms of its financials, it is a large-cap healthcare name ($170.0 billion market cap), and it has grown its sales and earnings at a five-year CAGR of 13.4% and 11.6%, respectively. Forward analyst estimates call for a 13.7% next year sales growth rate and 16.6% earnings growth rate. Analyst estimates have been rising over the past few months, as optimism around its industry-leading healthcare robotics position continues, and it makes progress on the AI front. 

While its share price has risen dramatically since the peak of 20221, its valuation has stayed roughly the same or declined slightly. This suggests its fundamentals are improving and that we could see its valuation compress more in the future if earnings continue to grow and its share price grows at a slightly lower rate. It is not cheap at a 68X forward earnings multiple, but we feel this is the price for a high-growth, industry-leading name in the robotics-assisted surgery industry.
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Spun off from JNJ, but shares are up only 6% this year. The activist investor is too harsh, because the entire health/beauty sector is under pressure.

Last week, Stan Druckenmiller said that markets have started to price in a Trump victory. Let's unpack that.

A bunch of smart people created an (untradeable) index that lists the companies that would benefit the most or least from a Trump win. Since July 21, when Biden dropped out of the election and Harris got a big bump in the polls, the companies based on a Trump win came down initially.

Since July 21, the total US market has gone up. But the stocks that would benefit most from a Trump victory are still down. Originally, Trump was going to win against Biden; whereas now it's a lot closer against Harris. But recently, a Trump victory is heading up.

On a long/short chart, you're long the companies if Trump wins, and short the companies if he loses. Since July, the chart was initially down, but recently stronger. So the charts have turned. 

Look to polling and predictive markets, where people can make a bet on who's going to win the election. If Trump wins you get paid, and if he loses you get $0. A chart on the predictive market initially showed higher probability of a Harris win, but recently things have gone the other way. Markets are thinking now that Trump is going to win. If you look at polling from a company like Five ThirtyEight, for example, they're now saying that Trump's ahead. 

So lots of indications that Trump's going to win. But it's a Trump sweep of both the House and Senate, and the Presidency, that would be the worst outcome for the market. Right now, Senate's looking like 51 seats for Republicans. The House race is going to be very close, but best guess right now is that both House and Senate go GOP.

Best outcome for the market would be Harris in the White House, split Congress with gridlock and not a lot of spending. The bond market, such as TLT, is trading as though it'll be a Trump sweep. He's all about cutting taxes, which means more debt financing, and that's inflationary.

Larry's all for putting $$ back in people's pockets, but that will limit the Fed's ability to cut rates, and the market's not priced for this right now. If we get a sweep, initially markets will rally. He'd recommend selling, not buying, into that rally. The cost of money would go up, the Fed would be less accommodative, and that will eventually hit equity multiples. Now, he can't tell you exactly when.

Bond yields are backing up. Someone came out today with a 5% US 10-year bond. If Trump loses, he's probably going to jail. If he loses, the Trump Media stock, DJT, will be worth nothing. If he wins, the stock will keep going. If it breaks below $25, bearish on Trump until election. If it keeps going higher, Trump's going to win.

US banks reported very strong results, and they hinted that the economy is on pretty solid footing. Sort of a "no landing", with growth continuing. Right now, bottom-up consensus estimates are that Q3 earnings will grow 4% YOY, with growth rates being higher in subsequent quarters.

We'll still get growth, but guidance from companies for next year will be very important. Given strength in the stock market and price appreciation, we need to have growth expectations met. Right now, earnings are supposed to grow 15% next year. We need that growth to materialize.

Q3 GDP is expected to grow 3.4%, so growth is continuing. But market is very sensitive to any negative news that may disrupt that growth profile.