The recent correction in the market has put pressure on even the strongest stocks. Pharmaceutical company stocks have corrected, and even Abbott is down by around 9% in one month. Many pharma stocks were making their lifetime highs. A little bit of profit booking is surely in order, but now it depends on how the overall market behaves. If there is stability, then the stocks can revert to individual growth tracks based on fundamental performance. Abbott has done great for investors over the years with great growth and dividend yields. Even now analysts are reasonably bullish on the stock, and Goldman Sachs and Jefferies have a target of $44 which is quite a bit away from current levels. Despite the correction, the stock is still ~17% above its 52 week low made in June last year. The consensus PT is lower at around $40. Growth in revenues is mainly expected from the emerging markets. That region is expected to increase in importance and contribute around 50% to the sales by 2015 (compared with existing 40%). Absence of products like Humira, after the separation of the research based pharmaceutical business, will make things a little difficult. Reliance will be more on medical devices, nutrition and diagnostics. It has several medical devices under development, some of them with innovative product technologies. This group comprises mainly of the vascular, diabetes care and vision care businesses. Innovation remains the main factor for success in the competitive environment. Even smaller companies like PLC Systems (PLCSF) are building a strong IPR portfolio for their proprietary technologies to support future growth in revenues. The pharmaceutical giants basically survive on continuous delivery of new products. Abbott is better on valuations after the correction, and the trailing P/E is under 11 now. However, the dividend yield is expected to be less after the separation. Going by past performance, the company is likely to deliver on expectations.
Abbot gave a number of presentations recently at medical products conferences. I was away for a few weeks so did not want to chew up all my hot spot minutes added to my smart phone. Last night I listened to the William Blair replay (6/13)that was pretty much company wide in scope and the Wells Fargo Healthcare conference (6/19). These are very enlightening and the 6/19 conference zeroed in on nutrition, which appears to be their best growth business. Investors think that the Colgates, Abbots, Kelloggs are really just safe stocks; however, in the last great secular bull market (1988 - 2000), these stocks exploded to the up side. I owned Colgate during that time and it went up about 60 times in 18 years. I looked at the medicals, foods and other safe companies and they had gains of 40 - 60 times. Eventually the current commodity bull market will end and these stocks will excel again.