The market has had a nice run over the past week and a half. However, I still remain cautious; there are still many shoes to drop in Europe, and domestic economic growth seems like it will be tepid at best through the rest of 2011. For the time being, I am sticking with stocks with low valuations, steadily growing earnings and solid and increasing dividend yields. One stock I like here with an almost 4% dividend yield is Abbott Labs (NYSE:ABT).
“Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. The company offers adult and pediatric pharmaceuticals for rheumatoid and psoriatic arthritis, ankylosing spondylitis, psoriasis, Crohn's disease; dyslipidemia; HIV infection; prostate cancer, endometriosis and central precocious puberty, and anemia caused by uterine fibroids; respiratory syncytial virus; adult males who have low or no testosterone; secondary hyperparathyroidism; hypothyroidism; and pancreatic exocrine insufficiency, as well as anesthesia products.” (Business description from Yahoo Finance.)
Eight reasons to buy ABT at $50 a share:
- Abbott appears to have a pretty solid technical base in the $46 to $48 range (see chart):
Click to enlarge
- It is near the bottom of its five-year valuation range based on P/E, P/S, P/B and P/CF.
- ABT has grown earnings an average of over 13% annually over the past five years, despite the recession, and it is selling at just over 10 times 2012’s expected EPS.
- Abbott provides a low beta (.30), a dividend yield of 3.8%, and an AA-rated balance sheet.
- ABT has beat earnings estimates each of the last four quarters, and consensus EPS for 2011 and 2012 have risen over the prior three months.
- Abbott Labs has raised its dividend payout an average of 10.5% annually over the past half-decade. It sells for less than 10 times operating cash flow and is increasing earnings and revenues at a healthy rate, which should bode well for future dividend growth.
- ABT has a solid new-product pipeline both in the pharmaceutical and medical device areas.
- S&P has a price target of $58 on ABT, and the mean consensus analyst target on the stock is just under $58 a share as well.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ABT over the next 72 hours.