Below are the valuation targets for Abbott Laboratories (ABT) for the next 10 years. Continue reading
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Abbott Laboratories 10-Year Targets
Below are the valuation targets for Abbott Laboratories (ABT) for the next 10 years.
Abbott Labs Update
On September 19, 2012 (found here), we recommended that investors consider selling Abbott Labs (ABT), at least the principal portion. At the time, ABT was trading at a split-adjusted $33. by October 16, 2012, shortly after our sell recommendation, Abbott rose as high as $34.67 or +5.06%.
Sell Abbott Laboratories (ABT) at the Market
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.
Posted in Abbott Labs, ABT, Sell Recommendations
Gaining More by Limiting Our Gains
One of the biggest challenges to buying and holding a stock for the long term is the wait through thick and thin for the expectations of a particular stock to materialize. In a process of elimination, the New Low Observer team has narrowed down the steps to determining quality stocks by relegating it to those that have increased their dividend every year for at least 10 years in a row. Furthermore, we only seek out those high quality dividend paying stocks, as well as Nasdaq 100 index constituents, when the companies are within 20% of the 1-year low. Having these requirements allows us to select quality companies at (potentially) ideal times to invest.
However, once we have decided on the company that we're interested in investing and we've committed money to, we are still at the whims of "Mr. Market." Although it might seem surprising to some, we are incredibly risk averse and always try to avoid losses whenever we can. We are so risk averse that we have a general rule that if the investment in a particular stock exceeds the gains of the market over the last 100, 50, 25, or 10 years on an annual basis (after expenses) then we tend to sell that stock to seek alternative investment opportunities. If nothing else, we secure the exceptional gains and bide our time until the next "undervalued" opportunity arrives.While the buy-and-hold crowd cries foul at the thought that we're speculating rather than investing when buying and selling high quality stocks at arguably undervalued prices, we have noticed a pattern that keeps emerging from our strategy that sets apart our approach from merely speculating. One of the best recent examples of the value in our investment philosophy is the case of Meridian Biosciences (VIVO).
On March 17, 2010, as the Dow Industrials and Dow Transportation Average were confirming the Dow Theory trend to the upside, Meridian Biosciences (VIVO) was dropping like a rock on news that the future earnings would have to be revised lower. In one fell swoop, Meridian Biosciences (VIVO) erased 9 months of hard earned gains in the stock price. I say 9 months because after our recommendation to sell VIVO, the stock increased in value an additional 27% in 3 months at the peak in September 2009.
At the time of our sell recommendation, Meridian Biosciences had risen 11.75% from our Research Recommendation on March 26, 2009. We were content in our gains and smug at being so smart at selling while the going was good. However, we watched, in almost horror, as the stock continued to climb higher going from our sell point of $20.35 all the way up to $26. We began to wonder if selling a company that we were convinced was of the highest quality was the best choice. After all, Meridian Biosciences (VIVO) is one of the only Dividend Achievers to match the gains of Google (GOOG) on a percentage basis from the date of Google's (GOOG) IPO to the peak in late 2007/early 2008.
With a tinge of regret we moved on hoping that our next investment would make up for our blunder of selling VIVO at such a cheap price. In the nine months since our sell recommendation of Meridian Biosciences (VIVO) we've made eight Investment Observations that were followed by Sell Recommendations. Below are the stocks we mentioned and the percentage gains that were secured since our sell recommendation of VIVO on June 12, 2009:
- Cardinal Health (CAH) +23%
- Abbott Labs (ABT) +16.80%
- SuperValu (SVU) +11.87%
- Nor'wst Nat (NWN) +10.53%
- AquaAmer. (WTR) +10%
- Cephalon (CEPH) +13.41%
- Mattson (MTSN) +24%
- Monsanto (MON) +22%
With the reduction of earnings estimates and the subsequent collapse of Meridian Biosciences (VIVO), the stock has fallen below the level of the original sell recommendation that was given on June 12, 2009. In addition, we've highlighted eight companies that have provided double digit returns in a complete buy and sell cycle all within a nine month period. The chart below illustrates the recommendation dates in green and the sell dates in red with the post-collapse price in yellow.
Today the New Low Observer team breathes a sigh of relief, not in the lose that has afflicted current Meridian Biosciences shareholders but based on the fact that we stayed the course with our investment philosophy which provided gains that, to this point, have gone beyond our expectations by actually limiting how much we are willing to accept on the upside.The lesson that should be learned about Meridian Biosciences is that although the price is nearly the same as a year ago doesn't mean that there was no movement or activity. In fact, the stock went up as much as 44% in 5 months. This is the hard lesson that most buy-and-hold investors should have learned about where the major indexes have gone over the last 10 years. Within all the drama that occured since 2000, many opportunies presented themselves but may have never been realized if holding for the long-term was the only investment strategy. For most investors, the real challenge becomes whether or not to sell a stock after exceptional gains.
Our Current Take on Meridian Biosciences
In our sell recommendation of Meridian Biosciences at the $20.35 level, we said that VIVO would easily go to the $23.33. Since the peak in the price at $26.20 in September 2009 and the recent decline to $19.60, Dow Theory indicates that for this stock, the upside move should take the price at least to the $23 level before going back to the old high of $26.20 or back down to the $19 range. Our expectation that a reaction of 11% to 13% upside move would not be unusual.For those who are interested in justifications of Meridian Biosciences (VIVO) as an investment candidate (since the negative news is already out), there are several compelling factors to watch for.
First and foremost is the recent confirmation of the bullish move of the stock market according to Dow’s Theory. This gives the investor that chance to make mistakes without paying a hefty price. More specific to Meridian Biosciences (VIVO) is the fact that the company is selling 16% below the 8-year average price-to-earnings ratio according to Morningstar.com. VIVO is also selling 3% below the average price-to-cash flow ratio over the last 10 years. Bolstering the case for VIVO is the fact that the company carries little or no debt. We will be watching Meridian Biosciences (VIVO) closely for any indication that the stock will decline from the current level. Our hope, as it always is, is to buy the stock at a much lower price and take reasonable gains in the shortest period of time possible. It is our hope that others can see the value of our approach of taking gains that exceed the historical average annual return and seeking alternative investment opportunities whether it is in cash or another quality stock that is at or near a new low.
- Don't know the historical average annual gains for 100, 50 or 10 years. Go to Moneychimp.com's CAGR of the Stock Market Calculator. Pick just about any time frame and see what you've been missing (even on an inflation adjusted basis).
- Want more info about the strategy mentioned above, then go to our article title "When Timing Meets Opportunity" on SeekingAlpha.com. The article was posted in July of 2009 and has more relevancy than ever before.
- Our article titled "Seeking Fair Profits" outlines Charles H. Dow's philosophy of fair expectations when investing in the stock market. Charles Dow was the co-founder of the Wall Street Journal and the Dow Jones Indexes.
Tell a friend about us. Thank you.
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.
-Touc.
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Posted in ABT, Sell Recommendations
Stock to Watch: Abbott Laboratories (ABT)
Abbott Laboratories (ABT) is a worldwide health care products provider. This $72.5 billion company, based on market capitalization, employs 69,000 employees worldwide. One of their well known products include FreeStyle, which is a blood glucose monitoring system. There are more products that ABT sell that I do not know but I am less concern about that. What struck me most about ABT is the valuation and its inability to move up during the most recent bull market run. This may be because upside momentum traders are trading name like Research In Motion (RIMM), Apple (AAPL), or Freeport McMoran (FCX). I'm just the opposite of a upside momentum trader, the less upside momentum, the easier it is for me to consider buying.
Fundamentals
Currently, ABT is trading around $47, has a price-to-earnings (p/e) ratio of 14, sells at 10x cash flow, and has a dividend yield of 3.4%. ABT is less than 15% above its one year low. My model shows ABT is undervalued with a dividend yield of 3% or 13 p/e, 10x Cash flow or below $49. I weight more valuation on dividend yield and thus I believe the shares are relatively undervalued at this price. One of the most impressive things about this company is their ability to raise the dividend by 11% in April. The dividend payout went from $1.44 to $1.60.
Technicals
The technicals are another aspect I pay strong attention to prior to buying any stock. I wrote about ABT's technical back on 6/8/09 and showed a possible reversal or head-and-shoulderpattern.
To follow up with what I am seeing today, I have drawn the chart below. Two strong pattern I see are the golden cross which is when short-term moving average crosses mid-term moving average and an ascending triangle.
Finally, in the chart below we have the altimeter for ABT. The altimeter really puts thing in perspective.
As we can see, ABT has a low range at 103 and a high range at 171. In two prior instances, I have circled the areas where ABT went up and then fell back down before rising to a new overvalued level. Currently, ABT is either in the middle of another temporary rise before falling a little bit further or we could be in a full scale move straight to overvaluation. In either case, if you bought now, according to the altimeter, you wouldn't be overpaying for this stock.
I believe Abbott is at the right valuation and urge you to start looking at it. Do your research before committing your capital.
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Posted in ABT
Watch List Update
This week the market took me by surprise. The Dow rose 4%. My watch list shrank from 15 companies to 11 companies. Here are the companies on my watch list as of July 24, 2009.
Dividend Achiever Watch List
Nasdaq 100 Watch List 
The companies that are within 10% of the low offer a great opportunity to do research and consider buying.
The companies that are within 10% of the low offer a great opportunity to do research and consider buying.Market Action
The biggest development was the Dow Theory confirmation of a bull market that occurred on Thursday. The Transports confirmed the Industrials with a big move (see charts below).With this action, Richard Russell recommended people to buy Goldman Sachs (GS). I would suggest you consider either the names I recommended on this blog in the watchlist above or the Dow index (DIA) or S&P 500 index (SPY).
Recent Analysis
On July 22, 2009, I wrote an article about the current market and a comparison to the 1980's. It also contained some information and important news on real estate. Also, I did a review of my investment strategy for the Dividend Achiever Carlisle (CSL) on the July 23rd. It was a great position for those who followed my advice.
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