Growth stocks have shown varying degrees of performance amid the broader bull market, which started when the S&P 500 index began its recovery from its lowest point in late 2022. Many investors still worry about the state of inflation, what that means for the economy, and how it might affect the companies they buy.
These are reasonable concerns, but they needn’t stop you from putting money into quality companies that can outlast these periods and deliver portfolio growth over the long term. Even if stock prices were to see a downturn, the only actual losses you would sustain is if you sold your positions.
If you have the cash to invest and the time to let your stocks grow in your portfolio, there are plenty of companies begging to be bought. Here are two top growth stocks to consider adding to your buy basket in August.
1. Intuitive Surgical
Intuitive Surgical (ISRG) is a top healthcare company that focuses on surgical robotics. Its robotic surgical platforms aid in a wide range of minimally invasive procedures, including general, thoracic, urology, and gynecological surgery.
The company is known for its da Vinci systems, of which it sells several versions or generations to medical providers around the world. While a single sale can bring in millions of dollars in revenue for the business, Intuitive Surgical has a unique model designed around recurring revenue that has bolstered its growth, profitability, and cash position through the years.
As of 2023, 83% of Intuitive Surgical’s revenue is derived from recurring rather than one-time revenue sources. Sources of recurring revenue include sales of replacement instruments and accessories for its da Vinci surgical systems, various services such as maintenance of surgical systems, and fixed payment or usage-based operating leases.
The remaining 17% of revenue last year came from sales of systems or sales-type leases, which can bring anywhere from $0.8 million up to $3.1 million per system. Intuitive Surgical generally earns $800 to $3,600 in instruments and accessories revenue for every da Vinci procedure, and anywhere from $100,000 to $225,000 annually in services revenue for every system leased or sold to its clients.
Fast forward to the recent quarter, and Intuitive Surgical reported that it had 9,203 da Vinci systems installed globally, up 14% from one year ago. Procedure volume in the second quarter rose 17% from the year-ago period, while revenue in the three-month stretch jumped 14% year over year to approximately $1.8 billion. Intuitive Surgical is also habitually profitable, with Q2 net income totaling $527 million, up 25% from one year ago.
The addressable market for Intuitive Surgical is only expanding as the demand for minimally invasive solutions soars across a wide range of procedure types. The company has long been a market leader as an early mover in this space, controlling roughly three-quarters of the global surgical robotics market. Now could be an excellent time to add to or start a position in this top healthcare growth stock.
2. Ulta Beauty
Ulta Beauty (ULTA) is known for its wide selection of beauty products and in-store spas spread across the U.S. The company counts numerous revenue sources, including sales of everything from makeup to hair care products as well as salon services, which include hair, skin, eyebrow treatments, and more.
Shares of Ulta have declined by double digits over the last year, certainly a function of ongoing concern about the state of the macro environment and its impact on discretionary spending as well as the company’s slowing growth.
While these factors may take time to resolve, Ulta’s business model has a broad cohort of loyal repeat shoppers. In fact, the bread and butter for Ulta Beauty is its loyalty program. The company has over 42 million loyalty members across the U.S., and these members drive a whopping 95% of sales for Ulta.
Over the trailing 12 months, Ulta Beauty has brought in profits of approximately $1.3 billion on a top-line figure of around $11 billion. It’s also generated operating cash flow of around $1.3 billion in that same time frame. Looking at the most recent period — the first quarter of the company’s fiscal 2024 — net sales rose by a growth rate of 3.5% year over year to $2.7 billion.
While growth is modest at present, Ulta Beauty is still profitable, net sales are rising, and the company’s cash position looks good. Warren Buffett recently added a $266 million stake in Ulta Beauty to Berkshire Hathaway’s portfolio, a sign that the Oracle of Omaha would seem to think the stock is undervalued.
Ulta Beauty is a key player in a highly fragmented total addressable market. While competition is steep in the beauty space, the fact that most of its sales come from loyal members indicates a resilience among its shopper base that can persist through a wide range of economic environments. Now could be a compelling time to buy the stock on the dip.
— Rachel Warren
Where to Invest $99 [sponsor]Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.
Source: The Motley Fool