Never take your cues from the weakest player in the industry, Jim Cramer said Thursday on CNBC’s “Mad Money.” It doesn’t matter if the business in question is food, retail, machinery … or even robots.
Cramer turned the spotlight to Mako Surgical and Intuitive Surgical — two very different hi-tech medical equipment companies that build advanced robotic surgery systems. And while Mako shares have been hit hard lately because of lowered guidance and mismanaged expectations, the stock has taken Intuitive down with it. But this move just doesn’t make any sense, Cramer said. Bad news for Mako isn’t necessarily bad news for Intuitive.”
Mako stock fell Monday night after the company came out and cut its full-year guidance. Shares of the hi-tech firm fell 10 points — marking a 43 percent loss in value — and in the past four months alone, the stock has slumped from $45 to less than $15 per share. And while Mako once enjoyed “turbo-charged growth,” that growth has substantially slowed.
Back in May, Mako missed the mark on both earnings and revenue and reported that the number of procedures performed on Mako’s machines was unchanged from the previous quarter. “When you’re a fast-growing company with a high-flying stock, you can’t afford to miss the numbers like that,” Cramer said. “Momentum stocks [have to keep moving] or they’ll die.” That’s why he's keeping Mako in the penalty box.
Even so, a number of analysts jumped on the chance to recommend the stock as a buy until Monday came around. Goldman Sachs announced the very next day that it was downgrading the stock to neutral. “Way to be ahead of the curve,” Cramer said. The problem was that expectations were set way too high, he added, and the company should have cut guidance back dramatically right after May’s disappointment.
But when the stock got slammed Monday, Intuitive — having gotten caught in the cross fire — also sagged to see a 20-point decline. The fact is, Mako’s problems have nothing to do with Intuitive, Cramer said.
In mid-April, Intuitive reported first-quarter earnings that blew away expectations — topping earnings estimates by 35 cents and boasting a roughly 27 percent boost in revenues year-over-year. The firm also sold 140 of its da Vinci surgical machines — up from 120 a year ago.
And unlike Mako, Intuitive is a big, well-known name with a proven track record and minimally invasive machinery that’s embraced by hospitals across the globe. While the two firms may sell into the same markets, Mako is far from raking in any profits right now, and is much smaller and more focused on orthopedics. That said, Intuitive has always been expensive — trading at 28 times earnings with a 21 percent growth rate — so Cramer isn’t for the faint of heart, either.
The bottom line: Don’t let Mako’s problems turn you off to Intuitive, he said. Mako is damaged goods, but Intuitive Surgical is still in excellent shape. "It may seem intuitive to dump Intuitive off of Mako's ills, but strong sales make that judgment just plain wrong — at least for now."
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