Sell Abbott Labs (ABT) at the Market

It is now time to recommend that Abbott Labs (ABT) be sold at the market. The stock has performed moderately since the stockwatch/investment observation was issued on September 24, 2009. It is highly recommended that anyone who bought the stock based on our insight should re-read the posting. Unfortunately, it was not possible to buy this stock at any price lower than on the recommended date.

ABT's stock price has gone nothing but up since the recommendation. However, in the pursuit of "seeking fair profits" the returns that this stock has provided within the last 133 days say that it is necessary to consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.

ABT was recommended when it closed at $46.94 on September 24th. As of February 3, 2010, ABT was quoted at $54.60. Based on yesterday's closing price of $54.44, ABT has gained 16.80% (including reinvested dividends.) The annualized return on this position would be close to 46%. Selling this stock now generates a return of 4.94x greater than the amount of the dividend yield if held for a full year. Additionally, the 16.80% gain exceeds the return on a 30-year treasury purchased on September 24, 2009 by 4.01x (if held to maturity.)

Those not interested in following through with our sell recommendation can feel comfortable knowing that ABT is a great long-term holding with a 16.80% downside cushion since our investment observation. As the price of ABT rises, it should be noted that the stock faces significant upside resistance at $56.50, $57.50 and $60.

As we have indicated in the purposes and function of this site, our goal is to:

  • maximize the annual yield of each trade.
  • reduce time between buying and selling of each stock.
  • exceed the annual yield of government guaranteed alternatives in each trade.
Investment observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.

Sell recommendations are intended to deal with the short term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the Investment Observation was made (please avoid making this mistake.) We aim for mediocrity in our returns, therefore we are happy with 9-12% annual gains. However, since codifying this approach to investing in 2005, we have had annual returns of 20% and above every year since.

It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.


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