It is likely that you have seen these brands before – it could be Similac formula milk for babies, Pediasure for children or Ensure for adults.
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These consumer brands are a common sight on supermarket shelves. But Abbott has a much wider range of products that covers every stage of a person’s lifecycle.
The largest segment is Diagnostics Product. These are equipment sold to laboratories.
The closest thing we can relate to would be the PCR machine to determine Covid infection. Abbott offers two types of machines that have the PCR capability.
The second largest segment is Medical Devices. One of which would be FreeStyle Libre, a diabetes monitoring device.
Third largest segment is the Nutritionals Product, which consists of the well-known Similac, Pediasure and Ensure mentioned above.
The smallest segment is Established Pharmaceuticals. Tricor, a cholestrol drug, is one of the best selling medicine by Abbott.
The key advantage of these products is that they are non-cyclical in nature – their customers will continue to use them regardless of economic booms and busts.
Abbott’s ability to increase dividend each year for over 50 years is a testament of its resilient business.
But we should not evaluate Abbott as a dividend stock. Investors who looked at the low 1.8% dividend yield would have missed the point.
Abbott is a high quality businesses and hence should not trade cheaply like a value stock. They should be valued more for its quality and growth potential.
Despite its size, Abbott managed to grow its revenue at 16% per year in the past 5 years. Dividend per share grew at 12% per year over the same period.
Even its PE Ratio of 22 looks high, but not if we compared it to its 5y median PE of 66. In fact, it is considered undervalued for it to trade around the -1 standard deviation level.
The PS Ratio trading range tells us the same thing – the price is as cheap as it was during the Covid low.
Of course, there will always be some negative things about a stock.
For Abbott, the first issue is the rising interest rate. This is a common problem for all stocks as valuations have been recalibrated lower. Abbott being a growth stock isn’t spared.
The second is competition. Siemens Heathineers, Roche, GE Healthcare compete in the diagnostics space.
Abbott has to face Medtronics, Johnson & Johnson, and Philips in the medical devices segment.
In terms of nutritional products, we have Nestle and GlaxoSmithKline.
Although the competition is strong, Abbott has managed to carve market shares in all the segments and still grow over the years. The competitive advantages exist.
The competition landscape appears to be stable and it is not easy for new entrants to enter. Hence, Abbott’s ability to grow in the future remains intact.
Who is suitable to invest in Abbott?
If you want Tesla-like kind of performance, Abbott will not offer that kind of excitement. Look elsewhere.
But if you are one who wouldn’t mind a boring high quality business that provides steady growth regardless of economic conditions, Abbott offers that.
Abbott is the tortoise in the race, slow but steady – its average annual return in the past 10 years was 15% with a beta of 0.85 (lower than 1 means it is less volatile than S&P 500 index).
