Better Than Intuitive Surgical? 1 Under-the-Radar Healthcare Stock to Buy and Hold Forever

Intuitive Surgical (NASDAQ: ISRG) has a powerful business model. The core is its da Vinci surgical robot, but the real flywheel is the sale of parts and services for its robots. A leader in this technology, the stock is up 500% over the past decade and trades at a lofty price-to-earnings ratio of 55x. It is an expensive stock.

Medical device competitor Medtronic (NYSE: MDT) has a P/E of 22x. And unlike Intuitive Surgical, Medtronic pays a dividend, yielding 3.6%. Here's why investors might want to look at Medtronic as it begins selling its Hugo surgical robot.

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Intuitive Surgical: Nothing short of impressive

Intuitive Surgical is focused 100% on surgical robotics and was an early pioneer in the healthcare niche. At the end of the first quarter, it had 11,395 systems in use worldwide, up 12% year over year. That said, demand for robotic-assisted surgeries is increasing, pushing the number of da Vinci procedures higher by 17% year over year. Both are important numbers.

Only around 24% of Intuitive Surgical's revenues came from the sale of new da Vinci systems in the first quarter. The rest of the top line was driven by services, instruments, and accessories. Selling new systems is important, but the real key is that each new da Vinci expands the company's annuity-like income stream from parts and services. It is a powerful business model, and investors clearly appreciate the company's long-term opportunity.

But given the valuation, only more aggressive growth investors are likely to be interested. Notably, despite the lofty P/E, the stock is in the middle of one of its relatively frequent drawdowns, off more than 20% from its 52-week high. If volatility bothers you, richly valued Intuitive Surgical could be a tough stock to own.

Medtronic is diversified and is now getting into surgical robotics

Medtronic is a diversified medical device company that has recently launched its own surgical robot. It is a long-established industry supplier with deep customer connections. While its surgical robot is new to the market, there is a very good reason to believe that it could be an important growth engine for the company for years to come. Particularly when you look at the success of Intuitive Surgical.

Sales of Medtronic's Hugo robot are only just ramping up. And, more broadly, the company has been reworking its product portfolio as it looks to refocus on higher profit products. Over time, the business got a little bloated and inefficiencies crept in. That happens to most companies over the long term, but Wall Street isn't giving Medtronic the benefit of the doubt. The stock is down 40% from its 2021 high.

That said, Medtronic stands out from Intuitive Surgical in important ways. Diversification, with material businesses in the cardiovascular and neuroscience spaces, provides stability to the business. It also pays a dividend, as noted above. So yield seekers will likely find it attractive. However, the biggest part of the dividend story isn't the yield; it is the 48 consecutive annual dividend increases that back it. That is just two years shy of Dividend King status, clearly demonstrating the business's consistency over time.

Medtronic is a great option for less aggressive investors

To be fair, Medtronic's stock price has pulled back just like Intuitive Surgical's. However, with a more diversified business, a more attractive valuation, and a well-above-market dividend yield, conservative investors will likely find Medtronic more appealing as a buy-and-hold investment. And, notably, during periods of volatility, you can watch your reliable dividend checks roll in instead of focusing all of your attention on stock prices.

Reuben Gregg Brewer has positions in Medtronic. The Motley Fool has positions in and recommends Intuitive Surgical and Medtronic. The Motley Fool recommends the following options: long January 2028 $520 calls on Intuitive Surgical and short January 2028 $530 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.