Growth stocks have had a wild ride over the last few years, as the tide of investor favor has shifted amid a volatile economic backdrop. No matter what the stock market does in the next few months or years, great companies with long-term competitive advantages can deliver wins for long-term investors with the passage of time.
The fresh bull market has reinvigorated many investors to add to their portfolios and seize upon new investment opportunities. If you're looking for two top stocks to buy in this new Nasdaq bull market and hold for years, don't overlook these names the next time you add cash to your portfolio.
1. Intuitive Surgical
Intuitive Surgical (ISRG -0.32%) has been the leader in robotic-assisted surgery for over two decades now. The company continues to dominate this space with its market-leading lineup of surgical suites, which revolves around several models of its da Vinci surgical system.
A single da Vinci system can run one of Intuitive Surgical's clients upwards of $3 million. That is a significant investment even for large medical providers, so these clients are incentivized to ensure proper training and maintenance of these systems.
The systems are usually accompanied by long-term service contracts. These contracts cover services like maintenance and training, and bring in anywhere from $80,000 to $225,000 per contract per year for Intuitive Surgical.
Then, the company generates anywhere from $800 to $3,600 of instruments and accessories revenue for every single procedure performed using its da Vinci suite, as these tools need to be replaced on a regular basis. Intuitive Surgical actually makes more money from recurring revenue sources like instruments, accessories, services, and operating leases than it does on actual system sales, lucrative as those are.
Looking at the most recent quarter, da Vinci procedure volume rose 16% compared with the same quarter the prior year, and its installed base of systems increased 14% year over year. Revenue for the three-month period totaled just shy of $2 billion, up 11% from one year ago.
This is also an insanely profitable business. First-quarter net income according to generally accepted accounting principles (GAAP) came to $545 million, a whopping 54% increase from the same period last year. The company just garnered approval from the U.S. Food and Drug Administration for the latest generation of its flagship system, called the da Vinci 5.
Some Wall Street analysts think the stock could have anywhere from 13% upside on the median up to 25% upside on the high end over the next 12 months alone. If it's steady returns and a quality healthcare business with a substantial moat you're looking for, Intuitive Surgical hits the nail on the head.
2. Netflix
Netflix (NFLX -0.93%) has been through a volatile few years, but the streaming giant has demonstrated its resilience despite this period. Its introduction of a cheaper, ad-based tier and crackdowns on password sharing are just a few initiatives that have stood out as it's risen from the doldrums it experienced in the immediate aftermath of its pandemic popularity.
Fast-forward to the present, and Netflix is profitable again, while membership and revenue numbers are growing at a steady clip. It's also important to bear in mind that this is a business that still dominates the streaming market even as competition is steep in this space and has eaten into its share.
As of the first quarter of this year, Netflix controls more than 44% of the streaming space in the U.S. alone. Bear in mind, the U.S. streaming market is on track to hit a valuation of $55 billion by the year 2027, a compound annual growth rate of about 8% from its current valuation.
In its recent quarter, Netflix generated revenue of $9.4 billion, up 15% from one year ago. Net income for the total period came to $2.3 billion, a 79% year-over-year bump. Total membership levels reached just shy of 270 million, a 16% increase from one year prior and compared to the same quarter in 2019 before the pandemic, up 81%.
The addition of an ad-based tier in key streaming markets has turned into a notable success for Netflix after sluggish adoption initially. The company reported that its ads membership rose 65% from the prior quarter, after increasing 70% sequentially in the prior two quarters. And 40% of all membership signups in the markets where Netflix offers the ad-based tier are now from ads plans.
A recent study conducted by market research firm HarrisX found that Netflix may have up to 22 million ad-based subscribers in the U.S. alone, and up to 30 million globally. That would mean that ad-based subscribers account for about 11% of Netflix's overall subscriber base.
Considering this tier is barely 18 months since launch, there's plenty of room to seize up more subscriber dollars while retaining existing customers, particularly as many consumer wallets are more constrained these days than in the past. It looks like a good time to be a Netflix investor, and if you've been holding off on the stock till now, even its premium valuation might still be worth buying into a slice of the action.
