There comes a time when great companies reach a sell range. In our view, Abbott Laboratories (ABT) just approached that mark for us.
After highlighting the fundamental and technical aspects of Abbott back at $47 on September 24, 2009, (article here) and actively accumulating the stock near the January 31, 2011 low (article here), the stock has risen 47% since 2009 and 53% since 2011 (excluding dividends). The annualized return is equivalent to +13.89% since 2009 and +28% since 2011. The stock outpaced the S&P 500 by roughly 13% from our 2009 review and by 37% since our early 2011 article.
Let’s revisit our original assessment of Abbott in 2009. The stock was trading at 14x earnings, 10x cash flow, and sporting a 3.4% dividend yield. Today, Abbott is currently trading at 22x earnings, 12x cash flow, and 3.0% dividend yield. The table below shows the relative change that has occurred since 2009.
| 2009 | 2012 | % Chg | |
| P/E | 14 | 22 | 57% |
| P/CF | 10 | 12.4 | 24% |
| Yield | 3.4% | 3.0% | -12% |
| Price | $47.00 | $68.90 | 47% |
While our valuation model shows that Abbott is undervalued at a 3% dividend yield, 13x earnings, and 10x cash flow, we’d rather recommend selling the stock only if purchased near the $45-$47 price range as indicated in our prior articles.
Those not interested in following through with our sell recommendation can feel comfortable knowing that ABT is a great long-term holding with a minimum 40% downside cushion since our 2009 posting. It’s no doubt that income investors can hold shares of Abbott knowing that dividend will be safe and will continue to grow. Anyone who bought Abbott at $47 would be sitting on yield on cost of 4.3%. Not too bad when 10 Year T-Bill is close to zero.
In any event, we believe it may be a good time to off load shares of Abbott by either selling the entire position or selling the principle while letting the profit runs.