Please ensure Javascript is enabled for purposes of website accessibility

This Is Why Abbott Labs Is a Great Stock to Buy Right Now

By Adria Cimino - Mar 19, 2021 at 6:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The key words are "growth" and "recovery."

Last year wasn't the best for most medical-device companies because hospitals postponed procedures in order to handle the wave of coronavirus patients. But Abbott Laboratories (ABT 1.48%) managed to flourish despite of this drag on its medical-device business.

The company posted increases in revenue and profit last year, thanks to its other business units -- and its big role in the coronavirus testing field. And the shares climbed 26%.

But it's not too late to get in on this growth story. Let's take a closer look at why right now is a great time to buy Abbott shares.

An investor smiles as he looks at stock performance on his computer.

Image source: Getty Images.

Success through diversification

First, a little background. Abbott's success is linked to its diversification. The company operates four business segments: medical devices, diagnostics, nutrition, and pharmaceuticals. In times of trouble -- like the pandemic -- growth in one can compensate for stagnation in another.

Over time, Abbott has increased annual profit and revenue. And the share price has climbed, too.

ABT Net Income (Annual) Chart

ABT Net Income (Annual) data by YCharts.

The company's annual net income and net sales climbed 21.9% and 8.5%, respectively, last year. And in the fourth quarter, Abbott reported $2.4 billion in coronavirus diagnostics sales. Last year, the U.S. Food and Drug Administration (FDA) authorized seven of the company's tests. These include tests for coronavirus detection, as well as antibody tests to determine whether a person was previously infected.

Here's why today is a great time to invest in Abbott. The coronavirus diagnostics story is just beginning. And at the same time, medical-device sales are set to rebound as many hospitals catch up on postponed procedures and resume normal operations.

I'm optimistic about Abbott's COVID-19 testing prospects for a few reasons. First, the U.S. government is expanding testing efforts throughout the country. Last month, the U.S. said it would invest $650 million to increase testing in schools and settings such as homeless shelters. The country also is spending $815 million to boost manufacturing of testing supplies and raw materials. These efforts will clearly benefit players in the coronavirus diagnostics field.

Quick, cheap, and portable

One of Abbott's newer tests also is a reason to expect revenue growth. I'm talking about the BinaxNOW test, which is cheap and portable. It's also available in two versions -- one for professional use and one for at-home use.

Abbott launched the professional test in late August and the at-home one in December. It delivered 150 million BinaxNOW tests to the government in January, and expects to fulfill the government's order for an additional 30 million tests by the end of this month.

And the innovation continues: This month the FDA authorized an Abbott test to identify and differentiate coronavirus infection, two types of flu, and respiratory syncytial virus. And Abbott recently created a global scientific network to help prevent pandemics. Abbott's role? Developing tests once Abbott and partners identify potential threats.

As for medical devices, Abbott predicts "steady improvements" in cardiovascular and neuromodulation. And product approvals from 2020 should bear fruit this year. Two examples: The FDA cleared an updated version of one of Abbott's star products, the FreeStyle Libre continuous glucose monitoring system. And Abbott won European clearance for MitraClip G4, an update of the world's leading minimally invasive device for mitral valve repair.

Overall, Abbott expects a strong year. The company forecasts earnings per share to rise 35% to $5.

Abbott's shares are up 7% this year. But they've slipped more than 8% over the past month. And this year, the shares are trading at less than 25 times forward earnings estimates. That's the lowest by this measure since July.

Here's some math. What does this price level plus prospects for Abbott's COVID-19 testing and medical-device businesses equal? The answer: A buying opportunity.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Abbott Laboratories Stock Quote
Abbott Laboratories
$114.87 (1.48%) $1.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.