That’s because revenue has increased year-over-year for 11 straight quarters — a heck of a track record.
Longer-term, the company is working on spinning off its brand-name medications from its generic operations, diagnostic devices and nutritional operations that include its profitable Enfamil baby formula. The move could insulate Abbott — and investors seem to like the look of things, based on strength in recent months.
In the meantime, Abbott’s brand-name drug operations continue to forge ahead with new product launches, so don’t be scared off until this spinoff transpires. Abbott has built a solid drug pipeline to drive future growth, including separate positive trial results for treatments for multiple sclerosis treatment and chronic kidney disease. These are smaller patient pools, but the drugs can be highly profitable.
A juicy income stream also makes Abbott an attractive low-risk bet. ABT yields 3.6% and has paid dividends since 1926.
Abbot is a good mix of stability and growth. Its nice dividend and its strong generics/devices operations will provide reliability for your portfolio.
Medical equipment stock Covidien (NYSE:COV) is a very different kind of play on the health care sector than Cerner. This is what financial industry insiders call a “secular growth story,” because it’s simply in the right place at the right time. It is a major medical device provider for clinical and home health markets, and both of those segments will see big profits as the aging baby boomer population drives up demand.
Covidien became an independent publicly traded company after being spun off from Tyco International (NYSE:TYC) in mid-2007. The move has allowed this health care giant to refocus and provide strong returns. Since its spinoff, COV stock is up about 23%. The Dow and the S&P are both in the red. The past 12 months haven’t been overly impressive, with a roughly 4% gain that has slightly lagged the S&P and the Dow, but momentum has been decidedly on the upswing in 2012. Covidien is up almost 17% since Jan. 1, vs. 6% for the Dow and 9% for the S&P 500.
This with a still-affordable P/E of 12.1.
Medical devices are a great example of growth and defense. Health care is recession-proof because consumers will cut back on just about everything before they decide to forgo medications or a trip to the emergency room. Also, the aging baby boomer population builds in growth as older Americans become more dependent on medical technologies.
It’s a win-win situation.
And like Abbott, Covidien is contemplating a drug spinoff to maximize its healthy operations. Analysts have suggested Covidien might execute a split that separates its medical products business that includes trays, hypodermic needles, retractors, pumps for patient feeding and pain management, and other items used in hospitals. These products are the most attractive part of COV, so if and when this happens, the spinoff will be a heck of a growth buy. Until then, Covidien remains a powerful health care investment with its drug operations rolled in.
A hidden bonus is the divided. Covidien has a modest yield of 1.7%, but a mere 11% of its profits go toward quarterly payments! Historically, payout ratios total 50% or more for the broader S&P 500, meaning this company is overdue for a significant increase. The company upped its payout 12.5% in 2011, and you can expect a big hike again this year. Covidien can foot the bill, with a $1.8 billion cash cushion.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.