Abbott Laboratories

(ABT) - Get Report

may not be a household name like


(MRK) - Get Report



(PFE) - Get Report

, but diverse products and financial strength make the company a more attractive investment in a recession.

Abbott reported

fourth-quarter results

today that matched consensus estimates of $1.06 in earnings per share, an increase of 14%, on revenue of $7.95 billion. The Abbott Park, Illinois-based company also reaffirmed its 2009 EPS forecast of $3.65 to $3.70. Merck releases its report Feb. 3 and Pfizer on Jan. 28.

Abbott's shares rose as much as 4% today, the best performer on the S&P 500 pharmaceuticals index. The stock fell 4.75% last year, outperforming the

S&P 500

by 33.5 percentage points and the pharmaceuticals index by 16.7 percentage points. Merck plunged 47% last year, and Pfizer declined 23%.

Ratings has Abbott ranked a buy for many reasons. One of the most appealing aspects is the company's financial strength. In the third quarter, Abbott repaid $3.28 billion of its short-term borrowings while maintaining a cash balance of $2.8 billion.

With a quick ratio of 1.27 and decreasing leverage, Abbott is keeping its head above water, given the rocky economic conditions. Merck and Pfizer, meanwhile, are rated hold.

Abbott, buoyed by a wide product mix, posted revenue growth of 17.6% in the third quarter, slowing to 10.1% in the fourth quarter. The company is able to bridge a blockbuster-drug gap with products that are more consistent and require fewer research-and-development costs.

Abbott sells Ensure, a dietary supplement; the Xience V Stent, an Everolimus eluting coronary stent system; and Lasik vision-correction equipment. With the recent acquisition of Advanced Medical Optics for $1.36 billion, Abbott now has a medical-device segment, which produces stents, insulin pumps and diagnostic equipment. Advanced Medical Optics is the largest maker of Lasik equipment.

While Abbott's offerings are diverse, the company is vigilant to avoid over-diversification that could take the focus away from pharmaceuticals. In this regard, the company sold its spine-equipment business to Zimmer Holdings for $360 million last year.

Heavy-hitters in the Abbott pharma line-up include Humira, a rheumatoid-arthritis treatment that accounted for 16.1% of revenue in the third quarter; Kaletra, an HIV drug that made up 5.2% of revenue; and TriCor, a cholesterol drug that contributed 4.5% of revenue.

Abbott said today it expects to submit its new Trilipix and Crestor combination lipid management pill for U.S. approval later this year. The company also plans to launch a new version of the Xience Stent in Europe by the end of 2009. Xience stents should be a major factor in 2009 performance as Abbott is projecting sales of $1 billion.

Abbott's pharmaceuticals unit was responsible for 55% of third-quarter revenue, compared with 74.1% for Merck and 94.4% for Pfizer. Abbott is afforded a cushion by its less-volatile products that do not face the devastating effects of patent expiration, which can turn a massively successful drug into an also-ran in just a single quarter.

Everyday products, such as FreeStyle diabetes-care products and Similac baby formula, provided stability to Abbott. This can be clearly seen in 2006. For most pharmaceuticals companies, if revenue from their pharmaceuticals segment fell 9.5%, as it did for Abbott in 2006, it would lead to falling total sales.

However, Abbott managed to eke out revenue growth of 0.6%, thanks to a gain of 16.6% in sales from other divisions. This is the reason why diversification is thrown around as a buzzword in finance: It allows room for error since all eggs are not in just one basket.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level II CFA candidate.