Berkshire Hathaway's Warren Buffett is famous for being one of the greatest investors ever. He's also known for his wise thoughts on both life and investing.
One Buffett maxim that applies to investing is that beating the market doesn't require genius-level intelligence. What it does require is the rational selection of businesses poised to benefit from trends -- and the discipline to stand by these decisions in the face of irrational market movements.
Here are two businesses that have outperformed the market in recent years and appear positioned to do the same in the future.
1. Intuitive Surgical: The future for surgical robotics
In recent years, surgical robots have risen to greater prominence within the healthcare system. This is because robotic-assisted surgery helps surgeons in a variety of ways, such as reaching areas that would be hard to access with the human hand, better accuracy, and greater efficiency.
And with its da Vinci systems performing 1.8 million procedures at nearly 8,000 hospitals around the world in 2022, Intuitive Surgical(NASDAQ: ISRG) is the heavyweight of the surgical robot industry.
Growing adoption of the company's surgical robot has led its revenue to nearly triple, from $2.2 billion in 2012 to $6.2 billion in 2022. This is precisely how a $10,000 investment made in Intuitive Surgical 10 years ago would now be worth $58,000. For perspective, that is almost double the $32,000 that the same investment amount in the S&P 500 index would be valued at today with dividends reinvested.
Looking toward the future, strong returns should continue. That's because due to technological advancements in surgical robots, the penetration rate is expected to grow in the years ahead. This is why the market research company Markets and Markets anticipates that the global surgical robots market will grow from $8.5 billion in 2022 to $18.4 billion in 2027.
Coupled with Intuitive Surgical's leading position in its industry, this explains how analysts think the company's earnings will rise by 16% annually over the next five years. Put into context, that is significantly more than the 12.8% predicted for the medical instruments and supplies industry.
What's more, Intuitive Surgical's forward price-to-earnings (P/E) ratio of 51 is almost twice the medical instruments and supplies industry average multiple of 27. Given the stock's market-smashing total return profile, its huge premium valuation is arguably warranted for growth investors.
2. Cigna: A massive and growing health insurance market
With over 165 million customer relationships between its pharmacy claim processing business and health insurance plans, Cigna(NYSE: CI) is a major health insurer. The company's $80 billion market capitalization makes it the fourth-biggest healthcare plan company in the world.
Thanks to an aging population, the rising prevalence of chronic health conditions, and acquisitions, Cigna's business has thrived in recent years. This resulted in the company's revenue spiking from $29.1 billion in 2012 to $180.5 billion in 2022. That is what propelled a $10,000 investment in Cigna made in 2013 to be worth $41,000 today with dividends reinvested.
As big as Cigna is currently, it's just a drop in the bucket the size of the overall health insurance industry. Vantage Market Research believes the global health insurance market will compound by 4.4% each year from $2.6 trillion in 2021 to $3.3 trillion by 2028. That is why analysts predict the company's earnings could increase by 11.1% annually over the next five years.
And because Cigna's dividend payout ratio is poised to come in below 20% in 2023, the dividend will likely grow faster than earnings for the foreseeable future. This is especially enticing considering that the stock's 1.8% dividend yield is moderately higher than the 1.6% dividend yield of the S&P 500 index. Dividend growth investors can buy shares of Cigna for a forward P/E ratio of 9.5, which is far less than the healthcare plans industry average of 12.9.
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