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For Abbott, Diversity Remains Paramount

When it comes to investing in Big Pharma, it's hard to top Abbott (ABT), especially as its peers continue to be beaten up.

In short-term, mid-term and long-term assessments of stock performance through Aug. 6, Abbott outpaced its rivals at each measurement most of the time. Abbott has also outperformed the Amex Pharmaceutical Index of big drugmakers at intervals of six months, 12 months, two years and five years.

"Abbott has done well with a diversified platform of nutritional products, diagnostics and devices to help offset the volatility of the pharmaceutical group," says Damien Conover of the financial research firm Morningstar. "Near-term, Abbott is set up for pretty good growth."

Growth was evident in mid-July when Abbott issued second-quarter results that beat Wall Street estimates, raised its full-year earnings forecast and predicted continued double-digit EPS growth in 2009.

Abbott's steady advance over the years has pushed its market capitalization to about $90 billion, trailing only Johnson & Johnson (JNJ) and Pfizer (PFE) among U.S. Big Pharmas.

Like J&J, Abbott's shares should continue to benefit from diversification, says Catherine Arnold of Credit Suisse, who gave a neutral rating in a recent report.

"We prefer Abbott to J&J in this regard given their relative growth outlook," says Arnold. Her firm has had a recent investment-banking relationship. (Abbott's stock beats J&J at two-year and five-year intervals; J&J wins at six-month and 12-month intervals.)

Arnold is neutral because Abbott is trading near her 12-month target of $59. Morningstar gives Abbott a four-star rating, with five being the highest, saying the stock is just below its fair value forecast of $63. The stock closed at $58.78 on Aug. 6.

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