Two companies are making life a lot easier for people with diabetes. Abbott Laboratories (ABT +1.31%) and DexCom (DXCM +2.80%) market devices that allow for convenient monitoring of blood sugar levels without the need for daily finger sticks.
The success of these companies' glucose monitors for diabetic patients has helped make Abbott Labs' and DexCom's shareholders winners, too. Last year, while many stocks languished, Abbott Labs' share price jumped nearly 27% and DexCom's share price more than doubled.
But which of these stocks is the better pick for investors now? Here's how Abbott Labs and DexCom stack up against each other.
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The case for Abbott Laboratories
Abbott Labs' FreeStyle Libre continuous glucose monitoring (CGM) system has been one of the most successful products ever for diabetes patients. Abbott CEO Miles White said in the company's Q4 conference call that global sales for FreeStyle Libre doubled in 2018 from the previous year to more than $1 billion.
Momentum for FreeStyle Libre is picking up rather than slowing. In the fourth quarter alone, Abbott added 300,000 new users for the product -- almost as many devices as the entire user base of the No. 2 competitor in the market. The company also already launched a second version of the product in Europe that includes optional alarms for patients to warn them when glucose levels are out of range. White said that this new version "should come to the U.S. shortly."
But Abbott's success isn't driven just by its diabetes products. The company's Alinity line of lab diagnostics systems also continues to be a huge winner, even though its launch has been limited for the most part to Europe so far. As Abbott fully rolls out the Alinity products in the U.S. and Asia and extends the functionality to additional areas including molecular diagnostics, sales will likely skyrocket. The company's structural heart portfolio of products is also performing very well and should continue to do so.
Abbott also makes around 39% of its total revenue from established pharmaceuticals and nutritional products. Both units generated solid sales growth last year and contribute significantly to the company's strong cash flow.
Fast-growing new products and a broad array of other products and services have enabled Abbott Labs to deliver great value to shareholders. The company recently boosted its dividend payout by 14.3% -- its 47th consecutive year of dividend increases. With Abbott's dividend now yielding 1.8% and analysts projecting average annual earnings growth of nearly 12% over the next five years, the stock should remain a winner.
The case for DexCom
Don't worry that DexCom has existed for only a fraction of the time that Abbott Labs has been around. The company's annual revenue and share price have soared thanks in large part to its G6 CGM system.
Like Abbott's FreeStyle Libre, DexCom's G6 doesn't require daily finger sticks for calibration. But the G6 goes even further. The only time it requires finger sticks is when readings don't match symptoms or expectations. Other CGM systems, including FreeStyle Libre, can require finger sticks in other events, such as during the first few hours of readings and when symptoms of high or low blood sugar are present.
In addition, the G6 system is integrated with insulin patch pumps, smart insulin pens, and insulin pumps from key manufacturers. Probably the most important integration is with Tandem Diabetes Care's insulin pump. The combination of DexCom's G6 and Tandem's X2 provides a closed-loop system that continually monitors glucose levels and automatically administers insulin when needed.
The G6 isn't DexCom's first CGM, though, and it won't be its last. DexCom is already working with Verily, a subsidiary of Alphabet, on developing the G7 CGM. This device could offer a fully disposable, real-time glucose monitoring system at relatively low costs.
DexCom's opportunity in diabetes is huge. Of the estimated 415 million people with diabetes, only 50% are diagnosed. And only 6% of the total number of individuals with diabetes achieve their desired outcomes.
Wall Street appears to be sold on the company's potential. Analysts project that DexCom will increase its earnings by a whopping 140% annually on average over the next five years.
Better buy
Both Abbott Labs and DexCom have great products and track records. So which is the better stock to buy right now? I think it depends on your investing style.
More conservative investors will prefer Abbott. The company is a Dividend Aristocrat that offers an attractive dividend with solid growth prospects as well. Abbott's broad scope of operations also gives the company diversification into multiple areas.
Aggressive investors, on the other hand, might like DexCom better. DexCom is a pure-play bet on the growing diabetes market with arguably the best CGM product.
Both Abbott and DexCom are top-tier diabetes stocks, with Abbott offering more than just a focus on diabetes. I don't think long-term investors will go wrong buying either stock.
Check out the latest Abbott and DexCom earnings call transcripts.
