How to Turn $5,000 into $175,000
By Rob Fannon, editor, Phase 1 Investor
September 26, 2008
Five years ago, I fumbled what could've been one of the biggest trades of my career...
If I'd put my money alongside my convictions, I would've turned $5,000 (about what I had to invest at the time) into $175,000. Let me explain...
It was 2003, and I was working in a prostate cancer research lab at Cedars-Sinai Medical Center in Beverly Hills. At the time, prostate cancer surgery was in the midst of a radical change.
Minimally invasive, robotic surgery was beginning to replace more traditional methods. Several companies were jostling for a piece of this multibillion-dollar opportunity, but one had emerged as the clear leader – Intuitive Surgical (ISRG).
The new robot-guided technique reduced common side effects like urinary incontinence and erectile dysfunction. Surgeons loved it. And patients were flocking to cancer centers that offered it. Yet one problem plagued the company's early success: price. Intuitive Surgical's da Vinci robot cost $1 million.
At the time, the U.S. was mired in recession. Analysts started to worry hospitals would stop buying ISRG's robots. Investors panicked, and the stock dropped about 60% in just a few months.
But here's the thing: Based on my interaction with surgeons and patients affiliated with our lab, I knew better. Patients wanted the new technology. Surgeons wanted the new technology. Prostate cancer wasn't going anywhere. Demand for da Vinci would remain strong.
But like the rest of the market, I froze. I failed to see through the short-term panic and pull the trigger on what turned out to be the biggest miss in my investing career. Intuitive Surgical has been one of the top 10 performing stocks in the U.S. over the last five years.
When shares peaked at more than $350 last year, from less than 10 bucks in 2003, I swore I'd never let an opportunity like that pass me by again...
These days, it sure feels like early 2003 all over again. The stock market is whipsawing. The economy's in recession. Investors are trying to pick up the pieces from a grinding bear market. And investors are dumping tech companies. Dell, Cisco, and Apple are all down about 30% in the last two months alone.
With the rest of the market feeling so uncertain, I think now's the perfect time to be on the prowl for a big winner. So I've been watching for opportunities that look and feel like the Intuitive Surgical setup five years ago. Here's what I'm looking for:
| 1. |
Does the company offer breakthrough technology in untapped or underserved markets? |
| 2. |
Has management turned that technology into real sales? I like to see revenue growth of 30%-50% a year, typical of product launches in their hypergrowth phase. |
| 3. |
Is the customer relationship sticky? Can the company sell "consumables" once the first sale is made? (Think Gillette: First, you buy the $5 razor... then you spend $15 on a pack of new blades.) |
| 4. |
Does management have skin in the game? I always look for heavy insider ownership. Insider buying is even better. |
Right now, several high-potential setups are forming in this tough market. If, like me, you've watched a stock you almost bought explode for 1,000%-plus gains, our chance at redemption has never looked better...
Good investing,
Rob Fannon
