Abbott Laboratories (ABT -0.41%) is on a roll no matter how you look at it. The stock recently hit an all-time high. It's up 14% so far in 2019 after delivering a strong 27% gain last year.
Some investors might think that it's time to sell their Abbott stock to lock in gains. Others might want to hold on to their shares but are hesitant to add more. And there are some investors who still see Abbott as a great stock to buy even after its big run. Which alternative is the smartest choice? Here's what you need to know.
Why you might consider selling
There are two main reasons that you might want to consider selling Abbott Labs stock. One is if you don't believe the company's long-term growth prospects are solid. Another is if you think there are better stocks to buy that would deliver an even better gain.
I'd seriously rethink your decision if you don't think Abbott's long-term growth prospects look very good. We'll dive into those prospects a little later, but for now, I'll just say that my view is that the company should be in great shape over the long run.
However, I could see why you might contemplate selling Abbott to invest in another stock that could grow even faster. Are there stocks that fit the bill? Sure. I think that in the healthcare sector alone there are several stocks that should outperform Abbott.
Remember, though, there's no guarantee that the stock you replace Abbott with will actually be a better performer. The approach that I personally prefer is to stick with a stock of a company that I have confidence in and use additional money to buy shares of another high-growth stock that I like. I've kicked myself for selling a good stock too many times and have learned from those experiences.
Why hold but don't add any more shares
Even if you think, as I do, that the long-term prospects for Abbott Labs remain solid, there are several legitimate reasons why you wouldn't want to add to your position. I just mentioned one of them: if you want to use your cash to invest in other stocks.
Another related reason why you might not want to buy more shares of Abbott is if your portfolio is weighted too heavily in healthcare. I stated not long ago that right now could be one of the most dangerous times ever to invest in healthcare stocks. My premise was based on the uncertainties about what could happen with the U.S. healthcare system. I'm still optimistic about healthcare stocks overall, but the risks shouldn't be ignored.
Some investors could be worried that Abbott's shares are about to decline. Those worries could be based on concerns about the overall stock market or perhaps that Abbott itself will somehow stumble. Billy Joel probably said it (or sang it) best: "You may be wrong, but you may be right."
The key, though, is that there's no way to know whether you're wrong or right yet. If you have specific reasons to suspect something bad is about to happen over the short run, you'd probably be wise to hold off on buying more shares of Abbott. However, I don't see any storm clouds on the horizon right now that are too troubling.
Why still buy Abbott
That leaves us with the final option: buy Abbott stock. Why would this option make sense? I think there are a couple of important factors to keep in mind.
First, Abbott Labs should be in a great position to generate solid growth over the next few years. Wall Street analysts project average annual earnings growth for the company over the next five years of more than 11.6%. That's substantially higher than Abbott's average earnings growth over the last five years.
This optimistic outlook stems from Abbott's new products. In particular, the company's Freestyle Libre continuous glucose monitoring (CGM) systems is a massive winner. Abbott hopes to soon win Food and Drug Administration approval for its new version of the system. When that launch happens, it should provide a nice boost to the company's sales.
The second factor to keep in mind with Abbott is its dividend. Abbott's dividend currently yields nearly 1.7%. That might not be overly impressive, but consider that dividend payments increased the company's total return by more than 60% over the last 10 years. Also, Abbott Labs is a Dividend Aristocrat that has hiked its dividends for 47 consecutive years.
You've probably figured out where I stand on the buy, sell, or hold question for Abbott Labs. I view the stock as a solid pick. Abbott won't necessarily be the flashiest stock around. However, I think it's a strong company with a very capable management team with a proven track record.
Like any other stock, Abbott will have some volatility -- although I suspect it will probably be less than most. But with the new version of Freestyle Libre on the way and other new products to fuel growth, my view is that Abbott Labs will stay on its roll for a long time to come.