My top 2 stocks to buy in February

With January coming to an end, I’ve been looking for stocks to buy in February. I mainly focus on businesses where the long-term growth prospects remain good even if the share price falls.

Diageo

Share from Diageo (LSE: DGE) fell 7% last week after the spirits giant reported earnings. In the six moths to December 31, the company’s operating profit rose 15.2% to £3.2 billion, while organic operating profit (excluding acquisitions and currency movements) rose 9.7%.

However, sales in the main market of North America disappointed. Organic sales increased 3% there, which was below consensus expectations of more than 6%.

Medium term, Diageo expects overall organic operating profit to grow in the range of 6% to 9%. This is due to the company’s strategic focus on premiumization.

premium brand

The company’s premium-plus brands – such as Johnny Walker and 21 Seeds tequila – drove 65% organic net sales growth in the second half of last year.

Chief Executive Ivan Menezes said: “The top end of our portfolio, the top 28%, the most expensive product, has doubled in every region around the world“.

The increased focus on premium brands should pay off in the long run. These labels have higher margins and are areas where companies can increase prices more easily. So I expect Diageo to continue churning out popular premium brands to keep profits going.

After the recent haircut, the stock now has a price-to-earnings (P/E) ratio of 21. However, this is still above the average P/E of FTSE 100, which is at 13.7 today. So the price risk is fixed. Still, I am ready to increase my position at the current price.

Intuitive surgery

Intuitive surgery (NASDAQ: ISRG) launched its first da Vinci surgical robot in 2000. Today, it has an installed base of 7,544 such surgical systems. That is set to increase over the next decade as more minimally invasive surgeries are performed robotically.

These machines provide surgeons with better dexterity and a greater range of motion than the human hand. For patients, this results in less blood loss and scarring, and ultimately less time spent recovering in the hospital.

Companies make a lot of profit from servicing these robotic systems. It’s the classic razor-and-blades business model, honed by the likes of Gillette, and others. There they make money on consumables (blades), instead of razors (robot da Vinci, in this case).

However, competition from deep-pocketed players like Johnson & Johnson and Medtronic is expected to increase in the coming year. When it can threaten Intuitive’s entrenched market position, I don’t see the company being satisfied.

One area with extreme long-term growth potential is in Asia, especially China. And the robotics giant wants to take advantage of this opportunity, recently investing more than $103m to build a manufacturing and innovation base in Shanghai.

China is already home to the world’s largest elderly population, but a staggering 402 million people are expected to be 60 years or older by 2040. The need for age-related surgical procedures will only grow. So I think the growth potential for international companies remains enormous.

With the stock down 32% from its 2021 high, it tops the buy list for February.