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Abbott Labs: Balancing Growth and Profits

The medical devices business, where Abbott competes head-on with Johnson & Johnson, continues to struggle, registering no growth whatsoever. By contrast, Johnson & Johnson posted 12% growth in devices. I'm not going to bore you with details here about Johnson & Johnson's organic vs. non-organic growth. I've already written about it at length. But suffice it to say, even on an organic basis, Johnson & Johnson's 2% growth still outperformed Abbott.

Here again, for Abbott, it's a familiar dance. While the company does show solid improvements and strong momentum in its nutrition business, it's hard to recommend the stock, especially when the devices business, Abbott's largest division, is posting mediocre results. Meanwhile, revenue in Established Pharmaceuticals, or what the company calls "branded generics," was down 2% (as reported).

I pointed out earlier that the nutrition business now accounts for 31% of Abbott's total revenue. While it's certainly a good thing that the nutrition business happens to be performing so well, from a diversification perspective, relying so heavily on one segment points to a potential weakness in the company's business.

I'm not suggestion that the growth in nutrition is due for an abrupt end. But it makes for some restless nights, especially since -- despite the strong growth -- gross margin still declines by almost 1% year over year. It still looks as if management is trying to sort out the remnants of the recent AbbVie separation.

To that end, I'm willing to give Abbott some more time. But until more progress is made and Abbott become more balanced, I don't see how this stock makes sense at this level.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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