How to Profit From Abbott Labs
Shares of medical device manufacturer Abbott Laboratories (ABT) - Get Report have been under pressure over the past three months, falling as much as 16%, from around $44 to around $36. During that span, the company secured FDA approval for a new implantable medical device that can prevent blood clotting.
Although Abbott Labs stock has recovered some 13 percentage points of those losses, this still creates a solid buying opportunity for investors looking to play the recovery towards $50.
The Abbott Park, Ill.-based health care company is set to report second-quarter earnings before the opening bell Wednesday.
The chart suggests that almost 20% gains are possible in the next 12 to 18 months. In the near term -- the next three to six months -- Abbott might deliver gains of 7% to 10%, thanks to its improving technicals.
Take a look at the chart, courtesy of TradingView.
Abbott Labs shares closed Monday at $42.09, down 0.02%. The stock has declined 6.3% year to date, trailing both the 6% rise in the S&P 500 (SPX) and the 2.9% rise in the Health Care SPDR ETF (XLV) - Get Report .
The fact that Abbott Labs has underperformed the broader indices is something to keep in mind, especially with pundits calling the market overheated.
Abbott Labs has a 2.5% yield and has underperformed the market. Good companies like this could be looked upon as safer plays when the market begins to rotate out of hotter stocks.
Why Abbott Labs? The stock has a consensus buy rating and an average price target of $47. The stock is trading at just 17 times fiscal 2017 estimates of $2.47 per share.
From a technical perspective, a rise towards $50 per share looks possible. As the chart shows, Abbott Labs stock regained all three key moving averages last week: the 20-day ($40.01 -- blue line), 50-day ($38.97 -- pink line), and 100-day ($40.05 -- pink line). It is now testing resistance at $42.47. It's only two-thirds of the way from filling the 9% gap created at the beginning of May. This suggests there could be 5% gains to be had on the way to $44.10 (red line).
If that threshold is reached, likely some time after the earnings report, Abbott Labs stock could have a clear runway toward its August 2015 high of $50 per share. That, in combination with its 2.5% annual dividend yield and its FDA stent approval, suggests Abbott Labs stock is worth the wait.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.