This is the 3rd and final installment of the Healthcare Stocks Ripe for Growth series.Yesterday was medical records processor, Quality Systems and the week before that was Biotech company Gilead Sciences. This week we finish the series with a supplier of robo-surgery equipment, Intuitive Surgical.

Intuitive Surgical (ISRG).

Intuitive Surgical is an $875-million-a-year business that produces the da Vinci Surgical System which let surgeons operate by manipulating robotic arms while seated at a control console. The robotics allow for a more precise procedure, resulting in smaller incisions which result in less physical trauma to the patient and faster recovery times. All of that means lower costs as well.

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While the share price of Intuitive Surgical has fallen from its recent high due to concerns over hospital buying power during the recession, the 2nd quarter profits were 22% higher than the previous year.

Competition.
What competition? Intuitive Surgical acquired their only rival in 2003, producing a de facto monopoly. De facto because there isn’t anything keeping new competitors from diving in, except the startup costs. But in the meantime, the lead time Intuitive Surgical a big head start on building market share.

Growth story.
The da Vinci System is primary used for prostectomies and hysterectomies currently, but it’s a relatively new technology. So as doctors gain experience with robotic surgery and the systems gain acceptance in the healthcare community, other types of procedures will be added.

Income.
Intuitive Surgical generates a lot of cash from sales of accessories and replacement parts for its 1,100+ systems. Each machine generates between $100,000 to $150,000 every year. Almost half of the company’s 2008 revenue was from these recurring costs, and that percentage continues to rise. This, coupled with 0 debt and $902 million in cash, makes it a solid company with high growth potential.

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• Healthcare Stocks Ripe for Growth: MEDICAL RECORDS. This is a continuation of the Healthcare Stocks Ripe for Growth series this week. Yesterday, I profiled the Biotech company Gilead Sciences. This week is the medical record keeper, Quality Systems. Quality Systems (QSII) Regardless of whether the Obama administration gets public healthcare legislation passed, one thing you can count......
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This is a continuation of the Healthcare Stocks Ripe for Growth series this week. Yesterday, I profiled the Biotech company Gilead Sciences. This week is the medical record keeper, Quality Systems.

Quality Systems (QSII)

Regardless of whether the Obama administration gets public healthcare legislation passed, one thing you can count on is a bigger focus on improving healthcare technology and efficiency. In fact, $29 billion of the $787 billion spending plan enacted by congress shortly after the president’s inauguration was earmarked specifically for such healthcare improvements.

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The growth story.
It’s no surprise that since then, Quality Systems has risen in price about 63%!

Given that kind of run up in price, it’s likely that a large amount of the return has already been realized, but it is still a solid company in a growth sector. Anyone who’s been to the doctor’s office and seen the wall of folders housing patient records knows that there is still a lot of information yet to be digitized.

Quality Systems is one of the big players in the fledgling industry and is therefore in a good position to capture a large market share and benefit from the government’s efforts to cut medical costs and increase the use of technology.

In good shape, financially.
The financial’s seem to be in good shape as well. The are already profitable, have a 30% profit margin, no debt and $78 million in cash. The stock also sports a $1.20 annual dividend, about 2.3% yield. Analysts expect profits to grow 11% for 2009, and 30% for 2010 – and that’s before the bulk of the money from tax payers kicks in.

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Healthcare may not seem like a great investment right now, with all the talk of a government take over of the industry, but sometimes those are just the times that create great contrarian opportunity.

Today, I’m profiling 3 healthcare sector stocks that show promise of growth in the coming years, regardless of the decisions in Washington D.C..

If you’re looking for some growth stocks in the healthcare sector, then these may be just the ones. Just be sure to do your due diligence and homework before you buy. This is presented for general informational purposes only.

First up is a biotech stock, Gilead Sciences.

Gilead Sciences (GILD) has managed to make weather the recession quite well so far, and has managed to maintain much of its profits. It may be due to the fact that GILD specializes in HIV pharmaceuticals, and many of their customers need that medication to survive.

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The company posted 31% profit increase for Q2, 2009. This increase was due mostly to Truvada and Atripla, which are once-a-day HIV treatments. Those two pharmaceuticals alone contributed $3.7 billion in sales last year, which is almost 72% of Gilead Sciences’ total sales.

Gilead has a serious economic moat as well, since they own 71% of the U.S. HIV drug market. They are on track to grow sales even more once Atripla is approved for European markets.

Diversification.
Gilead is taking steps to diversify through acquisitions of other pharma companies. They acquired CV Therapeutics (maker of a chronic angina treatment) and Myogen (maker of Letairis, a hypertension treatment) in the past two years. With these acquisitions alone, Gilead now has a presence in the cardiovascular drug market.

On solid ground.
Even after those acquisitions, Gilead Science still has almost $2.9 billion in cash. It also has a development pipeline and no soon-to-expire patents, something some larger pharma companies are struggling with.

The stock currently trades around 18 times this year’s expected earnings.

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