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Abbott: What the Doctor Ordered
01/01/2014 7:00 am EST
Investors are streaming into the market—which makes me nervous. As such, my latest recommendation is a defensive selection, a familiar name with low risk and decent growth prospects, suggests Timothy Lutts, editor of Cabot Stock of the Month.
Abbott Laboratories (ABT) is just what the doctor ordered; the 125 year-old company has a solid business with a good reputation and good long-term growth prospects.
It has an experienced management team. And it pays a good dividend, which currently yields 2.3% annually.
The company's four segments are nutritional products, diagnostic equipment, generic drugs, and medical devices, and the leading contributor to growth is the nutrition business, which is projected to grow at a compound annual rate of 35%, thanks to China, India, and other developing economies.
Notably, emerging markets account for 40% of Abbott's sales, so, an investment here is a great way to get low risk exposure to fast-growing emerging markets.
The generic drug business is also benefiting from this emerging market exposure. Abbott increased its exposure there in 2010, by acquiring Solvay Pharmaceuticals—which included a portfolio of branded generic drugs sold in Eastern Europe, Russia, India, and Brazil—and I wouldn't be surprised to see more action in this area.
On the diagnostic side, where growth is a little slower, Abbott is the leading provider of blood screening products used to detect pregnancy, heart disease, prostate cancer, hepatitis, HIV, sports doping, and other medical conditions.
And, on the medical devices side, the company is a leading producer of coronary metallic drug-eluting stents (DES), LASIK devices used in laser vision surgery, and insulin pumps.
In August, Abbott completed the acquisitions of IDEV Technologies, which expands Abbott's endovascular segment, and OptiMedica, which provides an immediate entry into the laser cataract surgery market.
This is the 42nd consecutive year that Abbott has increased its dividend payout and the company's balance sheet is very strong. I should also note that shares sell at a reasonable current P/E (price to earnings ratio).
Meanwhile, the stock is under accumulation, as institutional investors like what they see. The October jump higher on earnings news tells me, loud and clear, that the new uptrend is very likely to continue. And that's why I rate ABT a buy now.
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