As an investor, you might hope one of your investments gets lucky and yields multibagger returns quickly, growing your stake to an amount that gives you the financial freedom you’ve always dreamed of. The trouble is, that generally isn’t how investing in the stock market works.
And while some investors try to time the market in pursuit of wealth, in reality, that strategy turns out to be much more like gambling than investing. Even if you get the timing right once, it’s unlikely you’ll be able to replicate that success in a way that delivers any meaningful outperformance. More likely than not, you’ll miss out on the best market days because you’re trying so hard to avoid the bad ones and fail to accrue a large share of the gains that you could have earned. It ends up creating a lot of complications.
Investing doesn’t have to be that complicated. It boils down to consistently putting cash into great businesses and holding onto those stakes for three to five years at a bare minimum. Along the way you judiciously trim your losers and add to your winners, letting patience and time be your allies. These steps can help you yield steadier, more rewarding returns with time while removing the guesswork that comes with attempts to time the market.
If you’re looking for fantastic growth stocks to buy and hold starting in 2024, here are two compelling names to consider for your buy list.
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1. Intuitive Surgical
Intuitive Surgical (NASDAQ: ISRG) is a leader in surgical robotics, with its oldest system first approved over 20 years ago. Since that time, Intuitive Surgical’s lineup of products has evolved as the adoption of robotics for minimally invasive surgery has expanded globally, and the incorporation of intertwined technologies such as artificial intelligence (AI) looks poised to revolutionize this space in the years ahead.
Intuitive Surgical makes money in several ways. Its largest stream of revenue comes from recurring sales of instruments and accessories that accompany its systems. The company can earn as much as $3,500 in instruments and accessories revenue from each procedure performed using one of its surgical systems; the instruments can be used from 12 to 18 times before they must be replaced.
System sales are its second-largest source of revenue; a single robotic surgery suite can range in price from $500,000 to $2.5 million. Intuitive Surgical’s customers (i.e., hospitals) purchase its systems via traditional sales or sales-type lease arrangements with fixed, upfront, or usage-based payments.
The company also earns money from services it sells to clients, and operating leases. Intuitive Surgical charges annual fees of $80,000 to $190,000 per year per system for service contracts. Its diversity of its revenue sources — and its focus on recurring revenue sources — have made it a profitable, cash-rich business. And it continues to dominate the surgical robotics space, generating profits of $1.2 billion in the first nine months of 2023 alone.
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In its preliminary results for the fourth quarter and full 2023, Intuitive Surgical reported revenues of $1.9 billion and $7 billion, respectively. Those figures would equate to increases of 17% and 14% year over year. Those preliminary figures also reflected a 22% increase in da Vinci procedures performed in 2023 from the prior year (partly due to the resumption of procedures in key markets like Asia) and an 8% increase in da Vinci systems installed for customers.
Share prices of Intuitive Surgical are up about 50% over the last year and 12% since the start of 2024. Its solid business model, robust balance sheet, and strong foothold on its core target market are just several green flags for this business that could induce investors to open a position in the near future.
2. Upstart
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Upstart (NASDAQ: UPST) has had a rough several quarters — let’s get that out in the open first. The stock itself is up by about 100% over the past 12 months, partly because of short-selling by pessimistic investors and partly due to the fact that there is still interest in the future of the business, among other reasons.
Upstart uses AI and machine learning to inform more accurate, inclusive, and risk-favorable lending decisions. Its platform assesses more than 1,500 variables and leverages data on millions of repayment events to assess each person’s creditworthiness instead of only relying on Fair Isaac’s FICO score model. This accomplishes two goals: First, it gives lenders access to a wider swath of prospective borrowers, and second, it broadens credit access to consumers who had difficulty getting loans (or loans at reasonable rates) in the past because of how they were graded by the FICO model.
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The current uncertain economic environment has meant that Upstart has had to carry more loans than usual on its balance sheet in recent quarters. Normally it approves the loans and then hands them off to a lending partner (various credit unions and banks) within six months, collecting a fee from the partner. Partners have been more hesitant of late to take on some of the loans. Also, there have been fewer loan applicants because of increased interest rates. Then there is the fact that Upstart’s platform is constantly fine-tuning its assessments of the lending risks attached to the current macro environment as well as individual applicants, and fewer loans are being approved.
As a result, Upstart’s top and bottom lines have taken a nosedive. Upstart was still carrying about $975 million in loans on its balance sheet as of the end of its most recently reported quarter. To remain solvent, it secured multiple funding agreements in 2023. Through the first nine months of 2023, Upstart funded about 13% of loans, while 53% were purchased through institutional investors and the remaining 34% were funded by the originated lending partners. Revenue for the third quarter totaled $135 million and adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) totaled approximately $2.3 million.
Upstart’s core competitive advantage is its unique lending model. Loan approvals are expected to rise again once economic and consumer risk lessens. The company had 100 banks and credit unions in its partner network at last count, compared to just 10 when it went public in December 2020. Its auto lending software is used by enough auto dealers that it effectively has access to about 70% of the U.S. population. With 88% of all loan applications it processes being automated (a record percentage for Upstart), it’s increasing its operating advantage over traditional lenders.
Patience will continue to be warranted with this stock for the foreseeable future, and it likely wouldn’t be prudent to make it a significant portfolio position. However, as an addition to a broadly diversified portfolio of stocks, Upstart stock might be too good to pass up, given the long-term potential of its business as one of the few operating at its size and scale in the multitrillion-dollar lending industry.
