At current prices I think you’re getting two of Abbott Laboratories (ABT) most interesting growth opportunities at a deep discount.
Abbott is a good mainstream pharmaceutical company. Abbott’s blockbuster drugs include Humira (for rheumatoid and psoriatic arthritis: $5.5 billion in 2009 sales), Kaletra (for HIV/AIDS: $1.4 billion in 2009 sales), the TriCor/Triplex combination (for cholesterol and cardiovascular disease: $1.3 billion in 2009 sales) and Lupron (for prostate cancer: $800 million in 2009 sales) The patent on Humira doesn’t expire until 2016. Pharmaceuticals accounted for 53% of operating revenue in 2008.
Abbott’s vascular products unit—9% of operating revenue—is on a new product roll with the release of its new Xience drug-coated stent. Launched in 2008, Xience is the market’s leading drug-coated stent in the U.S. market for coronary and carotid stent.
My guess, though, is that most investors aren’t as familiar with Abbott’s nutritional and emerging market/generic businesses. And I don’t think the current stock price fully reflects the growth prospects in those areas of the company.
Nutritionals made up about 17% of Abbott’s sales in 2009. Products include infant formula (Similac and Isomil are the brands) and adult nutritionals (Ensure and Prosure.) This business segment grew revenue by 7.3% from 2008 to 2009 and I think growth could actually accelerate. Rising income levels are driving sales of infant and adult nutritionals in emerging markets and Abbott has been increasing its penetration, especially in China, South East Asia, and Latin American through moves like the 2009 acquisition of the nutritional business of India’s Wickhardt Ltd.
The other unrecognized part of Abbott’s business is epitomized by its acquisition of Solvay Pharmaceuticals. The acquisition, which closed in February 2010, expands Abbott’s market share in emerging economies in Eastern Europe, Russia, India, and Brazil and brings the company a portfolio of branded generic drugs. The generic drug market in developing economies is growing much faster than the drug market in the United States and other developed economies.
Wall Street analysts project 11.4% earnings growth for Abbott in 2010 and 11.6% in 2011. I think that’s a bit low given the momentum in emerging markets sales and in the nutritional segment. But even on Wall Street estimates the stock sells for just 11.3 times forward projected earnings.
The shares currently pay a 3.4% dividend yield. Do I need to remind you that the yield on 10-year Treasuries is just 2.54%? (For more on the dividend picture right now see my post https://jubakpicks.com/2010/09/17/lots-of-dividends-but-very-little-yield-an-add-and-a-drop-for-the-dividend-income-portfolio/ )
I’m adding Abbott to Jubak’s Picks with a target price of $68 a share by September 2011.
Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.
I know Ensure is great but I think This Antarctic Pure Krill Oil beats fish oil in almost every respect. Antarctic pure krill oil is super rich in essential DHA and EPA Omega 3 loaded with far more antioxidant power, has almost 100% bio-availability for better digestion.
To know more visit the page below:
http://krilloil.mercola.com/krill-oil.html
“I imagine this recall WILL drop their stock some in the short-term, which WILL make them a strong buy for the long-term in my opinion.” I need to proofread.
Per the press release, the recall was voluntary and the worst harm that done to a child who might have run across some formula which was affected is some indigestion. That is certainly no reason to switch if you have not had issues in the past. Like with most recalls, I imagine that more than 90% of the product was unaffected. If you open some up and it seems suspect and it matches the plant information, just return it. I imagine this recall drop their stock some in the short-term which make them a strong buy for the long-term in my opinion. I am seriously considering on buying some if the price drops a little more. Jim’s $68 target price in a year would be a nice gain.
creativekev – check costco. they still sell the 30 packs for about $35. about 5 years ago, i paid $32, so not too much of a jump.
crabby – the main reason people, esp older folks drink it is that its a really easy way to ‘eat’ calories. one bottle of ensure plus has 350 cals.
Full disclosure: I sell Ensure, j/k 😉 but I do own quite a bit of ABT, one of, if not my fav div aristocrats.
Jim, do you know they just had a recall for Similac today? We use that formula for our baby and now we are switching brands and will probably never go back. So I wonder what this recall might do to their marketshare in the formula business.
Why use Ensure at all? A diet of fruit and vegetables, some meat and quite a bit of seafood works fine for me. I also take a mulitivitamin and some source of Omega 3 – right now it is krill oil tablets, one a day is sufficient, they are small and easy to swallow and there is not fishy aftertaste. Check out krill oil here:
http://altmedicine.about.com/od/herbsupplementguide/a/krilloil.htm
Jim – Yes, possibly ABT is good for investors, but it certainly looks worse for customers of at least one of their nutritional products: Ensure nutritional drinks. Abbott just revamped their whole Ensure line and raised its price point significantly. For the same price, my mother used to get 6 bottles in each Ensure pack, but now their new pack contains just 4 bottles: That’s a full 1/3 less product for the same price to consumers. But I suppose that makes sense: Abbott stands to make more profit from raising product prices, benefiting their shareholders at the expense of their customers. Isn’t that the way it often works in publicly-traded companies?