Medical device giant Abbott Laboratories (ABT 0.63%) hasn't performed well in the past year. The company has had to deal with several issues that affected its results and its public image, notably the recall of its baby formula products.
However, every corporation faces challenges at some point -- that's not a good reason to avoid buying shares. And in the case of Abbott, there are plenty of good arguments as to why investors should strongly consider investing in the stock. Let's consider just three.
1. A booming diabetes care segment
Abbott boasts a vast portfolio of medical devices. However, its diabetes care unit has arguably been its most significant growth driver in recent years. In the second quarter, this business saw (organic) sales growth of 21.4% year over year to $1.4 billion. By contrast, the company's total revenue declined 9.2% to under $10 billion. If we take out the effect of Abbott's coronavirus diagnostics segment, the healthcare giant's sales grew at 11.5% organically, a much slower rate than diabetes care.
The star of the show is none other than Abbott's continuous glucose monitoring (CGM) system, the FreeStyle Libre. CGM devices are a game changer for diabetes patients. They allow for constant blood glucose sugar monitoring by automatically taking measurements throughout the day as opposed to the hassle of using a blood glucose meter that can only tell measurements at a specific time with painful fingersticks. Abbott is a leader in CGM technology.
Recent developments make the company's prospects in the diabetes care market even more appealing. In June, the FreeStyle Libre became the first and only CGM device to receive national reimbursement for all diabetes patients who use insulin in France. Making the FreeStyle Libre more accessible through third-party coverage has been a priority for Abbott. The company has added more than 3 million patients to its covered market across Japan, Europe, and the U.S. since last year.
In addition, Abbott recently acquired Bigfoot Biomedical -- which is also in the diabetes care industry -- for an undisclosed amount. Bigfoot Biomedical's claim to fame is its innovative insulin pen cap that can be paired with Abbott's FreeStyle Libre and uses data from the CGM device to guide insulin dosing recommendations for diabetes patients.
The two companies had been partners for years, but Abbott has now acquired Bigfoot to develop new ways to connect their respective technologies and better serve diabetes patients. Diabetes has been on the rise for decades, and that will likely continue. There will be a growing need for innovative solutions to help patients deal with this chronic illness. That's why Abbott Laboratories' work in this area is a big deal.
2. Diversification matters
Abbott isn't relying solely on its diabetes business to grow. The company's business is highly diversified across product lines and geographically. Within its medical device business, Abbott operates in several other therapeutic areas, from rhythm management to heart failure and much more. The company's other major units include diagnostics, established pharmaceuticals, and nutrition.
Meanwhile, Abbott has a presence in over 160 countries. The company generates more than half of its revenue outside the U.S. Diversification has pros and cons. One of the risks is that companies will spread their resources too thin. On the other hand, not being too dependent on a single business or region allows companies with diversified operations to deal with headwinds affecting one of their businesses.
Abbott Labs showed precisely that during the early days of the pandemic, when its versatility allowed it to develop and market several COVID-19 diagnostic tests to make up for the fact that its medical devices unit was struggling at the time. The company may or may not decide to spin off some of its units that aren't growing nearly as fast in the future, but its overall operations should remain diversified, which is a good thing for investors.
3. Abbott is a reliable dividend payer
Abbott is one of the best dividend-paying stocks investors can find. The company is in the exclusive clique of Dividend Kings and is currently on its 51st consecutive year of payout increases. That speaks volumes about the strength of the underlying business since it has been able to hike its dividends for that long despite recessions, market downturns, company-specific issues, pandemics, and many other setbacks.
Abbott Laboratories' current dividend yield of 2.11% is higher than the S&P 500's average of 1.54%, and its cash payout ratio of 63% isn't too high.Its solid dividend program makes a case for a compelling buy, especially for income-seekers. However, growth-oriented investors can find what they are looking for in this stock, too.
