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Buy ISRG or Not?
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Long time readers of my blog perhaps know I have a thing for ISRG. Most of my trades on ISRG documented in my blog for the last one and a half year have been quite profitable. We are again at the cross roads with ISRG and I was tempted enough to dig in on Friday. I bought some shares of ISRG at $285. Those interested in option trade, I bought ISRG Jan 390 Call for $10.30. Here is a case for the trades: ISRG reports on July 22nd. This is a do or die quarter for them. Not from a survival perspective but more from the perspective of being a growth stock as opposed to a plateaued steady eddie stock. (Getting baptized into S&P few weeks ago didn't help either.) On the bright side, it has been doing really well in rising steadily even as the market fell after hitting an intermediate bottom at around 247. This number also happens to be the lower bollinger band on the weekly chart and the 20 month moving average on the monthly chart. Perhaps it has found a strong support there. Not the least of all the reasons is the fundamental soundness of ISRG from a long term point of view with no life threatening competition on the horizon so far. Its biggest risk is an overall global recession finally impacting its multi-million dollar products and expensive parts replacement services. But hospitals usually have a longer investment horizons. One of the biggest advantages ISRG seems to provide them is the significant reduction in hospital stay overs. If you know anything about hospitals you know one of the most important metrics is the bed turnover rate. ISRG obviously provides a decent boost to the hospitals when it comes to that metric. Hence I see that ISRG may be able to continue making sales despite a drag in the economy. This is of course based on the assumption that ISRG is doing a good job in educating the hospitals about keeping their strategic metrics in mind while making decisions. And nothing would give us a better indication than the July 22nd earnings call which is right in the middle of a challenging economy. Here are three ways to play ISRG: (1) Short term but conservative: Buy either the shares or short term options until the earnings but sell right before the earnings. The idea here is that ISRG may continue to rise until earnings but you are being conservative by selling into that rise and not betting on whether the earnings will go right or not. (2) Short term but aggressive: Same play as above except that you hold most of your holdings right through the earnings with the hope that ISRG will surprise on the upside. A better way to play this would be sell half of your shares just before earnings to take some advantage of the potential rise till earnings and let the remaining shares ride through the earnings call. (3) Long term: I favor this the most since I strongly believe in ISRG fundamentals. Just buy the shares or long term leap options and sit on them for a while :) How am I playing it? As mentioned at the beginning of the post my trades will effectively play two angles - mentioned in point 2 and 3 above. I will keep a close eye on this stock though. If anything changes, I will post. Good luck | ||
