What are the best shares to buy now for my Stocks and Shares ISA?
We’re just six months away from the Stocks and Shares ISA deadline. And with plenty of my annual allowance left to capitalise on, I’ve been looking for the best shares to buy for my portfolio. Here’s how I’m looking for winning long-term investments.
How I find the best stocks to buy
There are thousands of businesses listed on the London Stock Exchange right now. And the list grows exponentially when venturing internationally to the US or European markets.
However, while investors are spoilt for choice, most of these companies will likely prove to be underwhelming investments. In many cases, shareholders are likely to lose money, with only a few businesses going on to deliver impressive market-beating returns.
This is the challenge that stock pickers have to overcome. But how exactly does someone identify a winning stock?
As a long-term investor, my focus is on the underlying business, not the stock. I’m looking for a specific collection of traits that pave the way for the actual company to thrive, which will eventually translate into a higher share price. After all, in the long term, the share price moves in line with the value of the underlying corporation.
These traits can be quantitative, such as excessive free cash flow generation, as well as qualitative, such as the formation of competitive advantages. Of course, neither type guarantees high investment returns. But looking at the biggest success stories over the last two decades, it’s almost always been the highest quality businesses that made their way to the top.
A top pick for my ISA right now
It’s easy to forget, but often, some of the best buying opportunities can be businesses that are already in my Stocks and Shares ISA. And it’s why I’ve recently topped up my position in Intuitive Surgical (NASDAQ:ISRG).
Qualitatively speaking, the firm has a lot of competitive advantages. Being an early mover, it’s established itself as an industry standard with 9,203 deployed worldwide. As such, surgeons around the world are trained to use its Da Vinci machines, resulting in Intuitive controlling an estimated 80% of the global market share!
The business is effectively a monopoly in this sector, granting it enormous pricing power, which has fed into its favourable quantitative characteristics.
The firm has a razor-and-blade business model where the Da Vinci machines are sold at a relatively low margin to hospitals and clinics. However, the consumable accessories that are required to use these devices, such as scalpels, are sold at a premium, translating into a continuous stream of repeat purchases that produce ample free cash flow as well as growth.
Of course, it’s far from a risk-free investment. The adoption of robot-assisted surgery’s still in its infancy compared to traditional surgery. And even with the faster recovery time and lower patient risk, the procedures are still prohibitively expensive for many health insurance plans.
While costs have been falling over the last decade, if they don’t continue to come down as Intuitive Surgical scales up, growth could slow significantly. And for a stock that currently trades at a pricy valuation, that exposes shareholders to volatility.
Nevertheless, the long-term potential and impressive track record of this enterprise give me sufficient confidence to top up my ISA position right now.
The post What are the best shares to buy now for my Stocks and Shares ISA? appeared first on The Motley Fool UK.
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Zaven Boyrazian has positions in Intuitive Surgical. The Motley Fool UK has recommended Intuitive Surgical. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.