You ever notice how the guys and gals who recommend the purchase of a stock never seem to be around when it comes time to make a sell decision? Not that I’ve never done it myself, but it bugs me enough that I try to wrap up a suggested trade as clearly as I opened one up.
That’s what I’m doing with Abbott Laboratories (NYSE:ABT) today.
If it rings a bell (and given how long it’s been since the pick, it probably doesn’t), it might be because I was bullish on Abbott way back in late October after the stock finally broke out of a long-term wedge pattern. It’s not the kind of thing most investors would have noticed, or even cared about noticing. But, the longer I do this, the more I’m convinced the technical clues tell you as much about where a stock’s going as the underlying fundamentals do.
It works both ways, of course, which is why I’m now saying it’s time to pull the plug on Abbott … if you were only in it because of my advice. That said, perhaps you should consider taking a little profit now no matter what the reason you got in.
All Good Things …
Click to Enlarge The nearby chart tells the tale. Shares soared in the meantime, from $53.45 then to the current price of $64.64. And they had been as high as $66.80 at one point last week. That’s a gain of at least 21%.
Unfortunately, it’s a gain that has left the stock technically overbought and ripe for a pullback.
Just for the record, though, the overbought “feeling” isn’t the only reason I suspect the rally from ABT is winding down.
While the stock surge is exciting, Abbott hasn’t exactly been knocking it out of the park on the earnings front. Oh, per-share profits have technically grown since then, but that growth has been sporadic, and not altogether reliable. Pair that up with the fact that the trailing P/E of 21 is about as expensive as we’ve seen the stock in a normal (i.e. profitable) environment since 2006, and what you’ve got is a stock that’s going to have a tough time justifying higher prices to new buyers.
That’s still not the only reason it might be time to let go of Abbott Laboratories now, however.
Click to Enlarge While the multimonth chart still shows a pretty clear breakout from a triangle pattern, when you zoom further out to a multiyear chart, another pattern emerges.
Last week, ABT bumped into a resistance line (orange) that extends all the way back to 1999. Had the stock not struggled — and ultimately pulled back — from that line so many times before, it might be easier to overlook it now. However, it has been the beginning of a major selloff three times in a little more than a decade, and I think it would be nuts to expect anything different this time around … especially given the underlying fundamental situation.
The Last Word
Just to be clear, this isn’t an assessment of the company’s merits. Abbott is a fine company, and I can’t imagine the company hitting any major stumbling blocks in the foreseeable future. This is about the stock itself, which — unfortunately — can become disconnected from the company’s underlying results from time to time.
As I sometimes tell friends, corporate results might determine what a stock “should be” worth, but I can’t deposit “should be” at my bank and pay the bills with it. I only make money by buying low and selling high, the latter of which can sometimes be a tough mental hurdle to clear. If it’s tough for you, too, then consider this your third-party approval to head for the exit on Abbott … at least for a while.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.