Spring is here, chronologically if not meteorologically. In
the lull between earnings seasons it can be a good idea to take a
look at the stocks in your portfolio and do a little
Hopefully you haven't been sitting on stocks that have been
steadily losing money, but if you're the kind of healthy,
well-rounded person who doesn't obsess over every fluctuation in
the market, things can easily slip a little without you
It can be hard to know whether a hiccup in a stock's price is a
temporary setback, or a signal that the party is over. Sometimes
dips present a buying opportunity, while sometimes it means it is
time to take your money and move along.
The latter case may be true for Intuitive Surgical (
). The company makes and sells the da Vinci Surgical System,
which combines robotics and imaging technology to let surgeons
perform complex procedures in a way that is minimally invasive.
The concept is a great one: the less you have to cut someone open
and disrupt the things you aren't operating on, the less healing
they have to do after surgery.
These machines can be used for a wide variety of procedures,
including a variety of heart procedures, gall bladder removal and
surgery to correct esophageal reflux.
The stock struggled in 2013 after studies questioned the
benefits of da Vinci procedures compared to other, less costly
kinds of surgery. In particular, a Columbia University found that
hysterectomies performed with the da Vinci system cost $2,189
more, on average, than laparoscopic procedures, while nor
significantly reducing length of hospital stays or complication
rates. This was significant because hysterectomies accounted for
about 30% of all surgeries performed with the da Vinci system
prior to the report.
A reduction in hysterectomies performed with the da Vinci
system hurts the company in two ways. First, a reduction in
hysterectomies will free up robots that could be used to perform
other procedures, eliminating some of the demand for more
systems. Second, hospitals may think twice about spending roughly
$2 million on a surgery robot that may not get used that
Another possible strike against Intuitive Surgical is the
company's own success. There are already 2,966 da Vinci Surgical
Systems in the U.S. as of the end of 2013, an increase of less
than 400 from the end of 2012. The company is trying to make up
some of the decline in sales growth in the U.S. by growing sales
internationally, but analysts are expecting growth to be slower
that it was in recent years.
The company seems to be somewhat rattled by recent
developments, as management declined to provide guidance for
2014, except to say it expects to see the number of procedures
performed using its machines rise by between 9% and 12%, which is
a decline from a 16% increase in 2013.
Traders who don't believe in the stock's ability to rebound
may want to consider a July 480/490 bear-call credit spread for a
$1 credit. That's an 11.1% return, or 34.66% on an annualized
basis (for comparison purposes only. This trade will return a
full profit so long as the stock is below $480 at July
expiration, giving it about 10% downside protection.