Hewlett-Packard Company (HPQ), IMAX Corporation (USA) (IMAX), Intuitive Surgical, Inc. (ISRG): The Jedi Portfolio

Although I am unaware of the Galactic Republic having a Kenobi Skywalker Industrial Average, wouldn’t it be cool if you could invest like a Jedi?  Well, here’s a couple of Jedi-like investments that would make even master Yoda proud.

Holographic Images

One of the most memorable scenes from the original trilogy was the holographic image of Princess Leia pleading “help me Obi Wan Kenobi.”  The technology to produce a holographic image isn’t available yet, but we may be much closer than you think.

Fox News reported that Hewlett-Packard Company (NYSE:HPQ) has developed 3D for mobile devices where you don’t need to wear glasses.  Now, that isn’t entirely new, but what HP has been able to achieve is.  “HP’s researchers have found a way to make images viewable in 3-D from angles up to 45 degrees from center in any direction –up, down, side-to-side or diagonally. That means viewers can see a person’s face with one ear blocked from view, but reveal the ear by swiveling the screen.” I think I speak for us all when I say that sounds pretty cool.

I’ve been very critical of HP lately, as they have been restructuring the company.  Big time problems remain, like low margins in their printer operations, and their difficulty entering the tablet and smartphone arena.  It seemed that Hewlett-Packard Company (NYSE:HPQ) was no longer able to innovate, and CEO Meg Whitman’s cost cutting seemed to be further proof this company was done for.  But the fact that HP has been able to develop this kind of technology gives the company a flicker of hope.  The commercial value for this 3D technology is a long ways off yet.  But to me, this company is now a wildcard.

In the meantime, one company that is benefiting a lot from 3D and HD technology is IMAX Corporation (USA) (NYSE:IMAX). Imax’s main revenue comes by providing people with a superior theater experience to watch their favorite Hollywood blockbusters.  The customer experience that they offer seems to be giving movie buffs what they want.

IMAX Net Income TTM data by YCharts

Over the past three years, IMAX Corporation (USA) (NYSE:IMAX) has been growing revenue at decent pace.  The revenue comes mostly from agreements to convert movies into a format that is conducive to Imax Theaters.  These operations have caused Imax’s profit to soar during this time.

Trends seem to indicate that more and more people are willing to spend a little more for a premium movie experience.  Given this trend, and the increase in the number of Imax Theaters, I expect IMAX Corporation (USA) (NYSE:IMAX) to continue to benefit and profit.

Robotic Surgery

In the wake of losing his hand to his own father, and amid his deep inner turmoil, Luke Skywalker was being retrofitted with a new hand by medical robots.  Believe it or not, bionic appendages that you move with your brain are now completely possible.  It seems that modern medicine has come a long ways from the leech days.  But more than just bionic arms and legs, modern medicine now has the option of robotic surgery.

While robotic surgery doesn’t imply a walking talking robot, doctors now have the help of robotic precision to remove prostates, replace knees, and repair heart valves.  Intuitive Surgical, Inc. (NASDAQ:ISRG) was the first major player in this arena.

Intuitive Surgical had a slow start in marketing their da Vinci Surgical System because of the start-up cost and the newness of the technology.  But sales have picked up speed, and the total count has surpassed 2,000 units around the world.  This is what Intuitive Surgical, Inc. (NASDAQ:ISRG) wants, because once they have sold the unit, the profits come from maintaining the equipment.  This past year, over half of their revenue was from these recurring sources.  As time goes by, this company will become less dependent on selling units, and more dependent on recurring revenue.

Lately there has been a lot of talk about little brother MAKO Surgical Corp. (NASDAQ:MAKO). Mako is not in the position that Intuitive Surgical, Inc. (NASDAQ:ISRG) is in–Mako is still very much dependent on how many units they sell.  2012 was a rough year for the company, as they originally predicted selling 56-62 units.  That unfortunately didn’t materialize–they only sold 45.  This coming year they predict selling only 45, which means sales would be flat.

While there is some uncertainty surrounding the lawsuits against Intuitive Surgical right now, they appear to be the healthier option of the two.  Mako could still have a hard time finding profits for the next couple of years.  But with Intuitive Surgical, Inc. (NASDAQ:ISRG), we have seen that their profits are becoming those of a maturing company.  The P/E ratio is a little high, but forward P/E is around 24, which seems reasonable for a still-growing company.

The Lucasfilm Buyout

Many were surprised and excited when news broke not too long ago that The Walt Disney Company (NYSE:DIS) was buying Lucasfilm.  This is in line with the buyouts they have done over the past several years now.  But how has Disney done in identifying value in their acquisitions?

*Approximate.  Data compiled from www.the-numbers.com and includes only box office and dvd sales.  This data also notably leaves out merchandise from the movies.  The merchandise revenue from Pixar’s Cars alone is estimated at around $10 billion.

As the table above demonstrates, Disney has a fantastic track record of identifying the value of their acquisitions.

Disney’s Pixar deal has the studio making one new movie every year.  The Marvel deal requires the studio to release two films every year.  The Lucasfilm deal won’t start adding any revenue right away.  The first movie won’t be until Episode 7 in 2015.  But interestingly enough, Lucasfilm has said that they will be making 2-3 movies a year starting in 2015.  That is truly remarkable when you consider that in the last 13 years they have only released five movies.

If Lucasfilm could release two movies a year, it is very possible for them to bring in $1 billion in revenue annually for Disney.  With the success that their studios are having, things are really looking up for Disney long-term.

Final Thoughts

I hope that this info helps you kick your portfolio into warp speed.  Unfortunately there isn’t a single public traded company that is benefiting from lightsaber technology.  Scientists keep telling us that lightsabers are impossible.  We also can’t invest (at least yet) in companies poised to profit from outer space exploration like SpaceX.  But there are plenty of companies in the meantime that are worth our investing attention.

May the Fool be with you.

The article The Jedi Portfolio originally appeared on Fool.com and is written by Jon Quast.

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