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Immediately after the opening bell, we initiate a position in Abbott Laboratories (ABT) and purchase 275 shares at approximately $112 per share. After the transaction, ABT will own approximately 1% of the Jim Cramer Charitable Trust. We’re triggering on this bullpen name after the company’s earnings announced on January 24th pulled back about 2%. Trust followers know that the firm grabbed a double of Abbott from the summer of 2017 to early 2022. It exited at nearly $120 per share. At the time, we didn’t want to overstay our welcome with the COVID-19 winners. Abbott stock has been volatile but largely flat since then, biding its time as the market struggles to figure out how to properly value the company amid declining coronavirus testing and growth in the company’s “foundational” business. ing. Now that coronavirus testing is no longer a revenue driver, we think enough time has passed to take a second look at this leader in medical devices and other healthcare solutions. ABT 5Y Mountain Abbott Laboratories 5 Years Abbott’s most famous franchise is medical devices. The group caused a bit of controversy over the summer after Novo Nordisk announced the results of a trial evaluating the ability of its weight-loss drug Wegovy to reduce negative outcomes in cardiovascular disease. The market assumed that with the increased use of these GLP-1 drugs, such as Wegoby and Novo’s Ozempic, which help patients better manage their diabetes, lose weight, and generally become healthier, Abbott’s major diabetes and cardiology departments would be disrupted. Abbott is the manufacturer of the FreeStyle Libre continuous blood glucose monitoring system. This system is the market leader in diabetes treatment and, by sales, is the most successful medical device of all time. The way Abbott’s stock was traded was acting as if GLP-1 was the cure and people no longer needed these devices. The idea was that the adoption of GLP-1, which also includes Eli Lilly’s Mounjaro for diabetes and Zepbound for weight loss, and the adoption of the Libre system were a zero-sum game, and the two could not coexist. After all, the company’s research shows that GLP-1 adopters see better results when Libre is used in conjunction with the drug. To be fair, we’re still wary about the impact this new class of drugs will have on the food industry, especially salty snacks and sweets, but not so much on the medical side. Beyond devices, Abbott has some interesting businesses, such as its nutrition business, which management believes will grow about 6% this year. Believe it or not, the interesting part of this story isn’t pediatrics, although it has returned to market leadership after a tough 2022 due to recalls. We are more focused on the innovations happening in nutritional shakes for adults. These may be beneficial for those seeking to limit muscle loss associated with GLP-1 use. Abbott sees opportunity here, too, and plans to launch a new energy drink specifically for GLP-1 users later this year. According to JPMorgan, 30 million people in the U.S. could be taking these drugs by 2030, and many people could end up taking protein supplements daily in the future. Another major segment of Abbott is established pharmaceutical companies. The segment’s sales are derived from the company’s portfolio of established medicines (branded generic medicines) sold in both developed markets and major emerging markets. Although not the most attractive business, organic sales have increased by double digits for three years in a row, and profit margins have also expanded. The company also has a large diagnostics business best known for its core laboratory product suite and rapid diagnostic tests. Core Laboratory’s primary brand is the Alinity family of systems, which are designed to “run more tests in less space, produce test results faster, and minimize human error.” . During Abbott’s fourth-quarter earnings conference, management noted that Alinity’s renewal rate continues to be high and the company is winning new business. Abbott is more than just a coronavirus testing company, and the company’s past growth and innovation comes as the market begins to believe that GLP-1 won’t disrupt its major diabetes franchise. I think the time has come to reevaluate the issue. what’s happening here. The company reported strong earnings on Wednesday (January 24) morning, capping off a strong 2023 with organic revenue, excluding sales of coronavirus tests, up 11.6%. For the full year, organic sales of medical devices increased 14.2%, nutrition business increased 13%, established pharmaceutical business increased 10.9%, and diagnostics (formerly known as COVID-19 tests) increased 5.8%. Abbott expects organic sales to grow 8% to 10% in 2024, even faster than the 7% growth rate before the pandemic. There aren’t many companies of Abbott’s size (market capitalization of about $200 billion) that can say they’re producing such numbers. This is especially true in the medical field. However, the stock price fell on the day of settlement. Indeed, fourth-quarter earnings per share of $1.19 were in line with expectations, and the midpoint of the full-year guidance range of $4.50 to $4.70 was a few pennies short of $4.64. However, management teams have historically been conservative at the start of the year, so we believe they are preparing for a raise. Now that expectations have cooled, I think this pullback is worth buying. With this purchase, the target price for Abbott Labs is $130, and the stock price is approximately 28 times the forward P/E ratio. Although this is a premium compared to the historical average of approximately 24x, we believe it is justified given the company’s sustained high growth rate. (Jim Cramer’s Charitable Trust is Long ABT, LLY. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, trade before Jim makes trades. Receive alerts. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust’s portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
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