Abbott Labs Outpacing the Sector

NEW YORK (TheStreet) -- This article is the first of a series that will give you further information on stocks that are highly rated by TheStreet staff. During the last 40 years I have reviewed many rating systems, some which led me to follow stocks I might have otherwise overlooked. Most lists cannot address the widely different investment needs and risk tolerances of the individual investor.

Before you start using any rating list you need to first identify whether you are a growth, value, income or momentum investor. A stock that might be suitable for your tax-deferred IRA may be totally unsuitable for your taxable accounts. Here is a link to a video I made that further explains some investment issues: The 3 Stages of Investing.

This series is designed to expand on each highly rated issue to give you additional information to make an informed decision whether this highly rated stock might be suitable for your own portfolio.

Abbott Laboratories ( ABT) has been given an A+ rating by the staff of TheStreet. Recently the stock has been a little flat and about a month ago was trading at close to the same price it trades today.

The good news is that over the past six months Abbot Labs has outpaced the overall market as measured by the Value Line Index. While the Index is down 2% of the period Abbott Labs is up 9%:

Abbott engages in the discovery, development, manufacture and sale of health care products worldwide. The company primarily serves retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices, and government agencies. Abbott was founded in 1888 and is headquartered in Abbott Park, Ill.

Factors to Consider

Barchart technical indicators: The stock rates a 56% Barchart technical buy signal as well as a Trend Spotter buy signal. It trades above its 20-, 50- and 100-day moving averages.

Although the stock had six up days in the last month, it is trading up .81% for the period. During the last quarter it hit 18 new highs and is up 5.93% for that period. The stock price increased by 31.45% over the past year and has a Relative Index of 53.66%.

Barchart computes a technical support level at 65.17 and the stock recently traded at 65.42 which is above its 50 day moving average of 64.61.

Fundamental Factors

Seventeen Wall Street brokerage firms have assigned 21 analysts to monitor the company's numbers. A consensus estimate projects revenue will be up 2.30% this year and another 3.4% next year. Earnings are estimated to increase by 8.40% this year, an additional 6.30% next year and continue to increase annually around 8.54% over the next 5 years.

These numbers resulted in two analysts issuing Strong Buy recommendations to their clients while eight rated it a Buy, 11 a Hold and one a Sell.

The balance sheet gets an A++ rating. The P/E ratio is 13.58 which is slightly less than the market P/E of 14.60. The dividend rate of 3.07% is close to 40% of projected earnings and above the 2.30% dividend rate of the market.

The company markets a wide range of drugs and medical supplies that provide a steady and predictable income stream. The company will split into two divisions later in the year and that new capital structure has not been announced but analysts predict that might enhance stockholder value

Investor Interest: The staff of TheStreet thinks this is an A+ stock and the 2,661 individual investors on Motley Fool feel the same way and voted 96% that they feel the stock will beat the market. Wall Street analysts look for investors to receive a total annual return in the 12% to 14% range over the next five years. Since May total short interest has been steadily declining.

Abbott Labs stock price held up well against its peers over the past year and was up 31%, while Pfizer ( PFE) was up 30%, Novartis ( NVS) was up 5% and Merck ( MRK) was up 36%.

Some quick comparisons of its peers are below.

Pfizer:
  • A+ TheStreet staff rating
  • Analysts project revenue to be down 11.40% this year and down another 2.20% next year
  • Earnings estimated to be down 4.30% this year but up 4.50% next year
  • Novartis:
  • A- TheStreet staff rating
  • Analysts project revenue will be down 2.00% this year but up .90% next year
  • Earnings estimated to be down 5.60% this year and up 3.60% next year
  • Merck
  • A+ TheStreet staff rating
  • Analysts project revenue to be down 1.80% this year and down another 2.60% next year
  • Earnings are estimated to be up 1.10% this year but down 2.40% next year
  • Summary: TheStreet staff seems to rate all the major pharmaceutical stocks very highly but Abbott Labs is the only one that analysts predict will have increases in revenue, earnings and total return for both this year and the next.

    If you want a pharma in your portfolio this is a good choice. The steadily increasing and above-average dividend makes this an ideal stock for a conservative IRA that is on a dividend reinvestment program. Growth investors should be looking for stocks that analysts project will have increases of at least 10% in revenue, earnings and total return and this stock falls short from those benchmarks. Conservative investors should like the improving moving averages and turtle channels.

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

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