Better Bear-Market Buy: Abbott Laboratories vs. AbbVie Stock

It's inevitable that offspring are compared with their parents. This happens with famous people and not-so-famous people alike. And it also happens with companies. For example, Abbott Laboratories (ABT 1.91%) spun off AbbVie (ABBV 1.06%) in 2013. The two companies have been compared ever since.

There are pretty good arguments for both stocks. But which is the better one to buy in the current bear market? Here are the cases for Abbott and AbbVie.

Abbott: A solid mix of businesses

Adria Cimino (Abbott): Abbott hasn't defied the bear market. The stock actually has lost 27% so far this year. But it's still a stock you'll want to pick up during this kind of market. That's because Abbott has what it takes to deliver share-price gains over the long term.

First, Abbott has a solid track record of revenue and profit growth. The company also is a Dividend King. That means it's raised its dividend for at least the past 50 years. So, it's clear dividends are important to Abbott. And during tough times like during a bear market, investors may especially appreciate this passive income.

Abbott also is a winning long-term stock for any portfolio due to its mix of businesses. The company doesn't rely on just one specialty. Instead, Abbott has four units: medical devices, diagnostics, nutrition, and established pharmaceuticals.

These days, Abbott's strength in coronavirus testing has pushed diagnostics revenue through the stratosphere. In the most recent quarter, Abbott's coronavirus-testing revenue reached $2.3 billion. That made diagnostics its biggest business.

If coronavirus-testing demand drops off though, it shouldn't make a major dent in Abbott's earnings. Here's why: The medical-devices business traditionally has been the biggest revenue driver. And medical-device revenue often suffers during times of strength for the coronavirus-testing business. That's because when coronavirus hospitalizations rise, hospitals postpone some nonessential surgeries. Conversely, during times of lower-testing revenue, the medical-devices business may thrive.

Now, let's take a look at Abbott's valuation. Abbott trades for about 20 times forward-earnings estimates. That's down from more than 27 earlier this year. This looks like a reasonable price. Why? Because Abbott has proven itself over time, ensures dividend growth, and continues to offer growth through new product launches or updates to current favorite products.

AbbVie: Checking off multiple boxes

Keith Speights (AbbVie): I think that there are several reasons why AbbVie is a great stock to buy in the current bear market. Let's start with something it shares in common with Abbott: They're both Dividend Kings. Income investors should especially like AbbVie's relatively high dividend yield of over 4%.

But AbbVie's differences with its parent company really make it stand out. The pharma stock is actually up a little year to date and is handily beating the S&P 500.

AbbVie's valuation is also quite attractive. Its shares currently trade at less than 12 times expected earnings.

The most important plus for AbbVie, though, is its solid growth prospects. Sure, the company faces the loss of U.S. exclusivity for its top-selling drug Humira next year. However, AbbVie should quickly rebound after an initial sales decline thanks to other growth drivers in its lineup. In particular, Humira's successors, Rinvoq and Skyrizi, should eventually generate combined annual sales that are even greater than Humira did at its peak.

Where will AbbVie be in three years and beyond? Market researcher EvaluatePharma projects that AbbVie will become the biggest pharmaceutical company based on prescription-drug sales by 2028. This bright outlook combined with its other advantages make AbbVie a solid bear-market pick right now.