Shares are now up 9.4% for the year, about as much as the Nasdaq Composite is down. Investors are piling in on the basis of a strong earnings report, and a 5-minute test for coronavirus antibodies the size of a toaster.
Early on April 16 Abbott was trading at $95 per share. That gives it a market capitalization of $168 billion on 2018 revenues of $32 billion, of which 11% hit the net income line last year.
The question is whether, with a price-earnings ratio of 42 and a dividend yielding just 1.6%, is it too late for you to get in to ABT stock?
ABT Stock Is on Top of 2020
In their earnings call, Abbott executives withdrew any guidance on full-year earnings, saying the outlook is too uncertain.
Medical devices were not the star of the show in the first quarter. Sales of pharmaceuticals and nutrition products rose faster. Even on the medical device side the top performer was Freestyle Libre, a glucose monitor, whose sales rose 63%.
Many Abbott products are used in heart surgery, which can be put off. But nutritional products like Ensure and Pedialyte remain important during the pandemic. Overall, sales were up 2.5%. Earnings per share were down 18% from a year earlier, at 30 cents per share. But the company did maintain the 36 cents per share dividend, noting it has been paying one for 48 years.
Abbott is a dividend aristocrat, a designation given companies that have paid dividends for a quarter century or more. This speaks to how the company is managed, which is to say conservatively. At the end of the quarter the company said it had $3.7 billion in cash and short-term investments. There were also revolving lines of credit worth another $5 billion.
What investors wanted to hear about, however, were the coronavirus tests. The company launched three during the quarter. One runs on its m2000 RealTime platform. A second runs on its ID NOW point-of-care platform.
The new test for antibodies works on Abbott’s ARCHITECT i systems. It can tell whether someone may have been infected, even without symptoms, and begun producing antibodies against the virus. The test required Emergency Use Authorization from the U.S. Food and Drug Administration to go into service.
All About ABT Stock
As the pandemic worsened in March, ABT stock fell along with the market. Shares bottomed on March 23, down 27% for the year.
Since then they are up $25 per share, meaning they are back at pre-selloff levels. Traders now look for any sign of market weakness as an excuse to buy. Healthcare analysts are saying Abbott offers the “perfect combination” of dividends and growth.
InvestorPlace’s Chris Lau was on top of this before many people. He wrote favorably about the company back in January. At the time the stock was trading at just $71 per share. He noted that the company’s debt rose with the 2017 acquisition of St. Jude Laboratories, but that it still had just 62 cents of debt for every $1 of equity. Investors who listened to Chris made money.
The Bottom Line on Abbott Laboratories
This is not a time for long-term investors to be reaching for growth.
It is instead a time for what I call triage. That means putting money in companies with strong cash flow, with plenty of cash in the bank, and with products essential to the economy.
Abbott hits the mark on all three. If you still have cash to invest, ABT stock should protect it through 2020. It may not be right when the economy returns to growth next year, as we all hope it will. But it will maintain its value and provide a little income while nothing else is working.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.