A Great Stock For Buy-And-Hold Investors
Abbott Laboratories (ABT) has been one of my favorite stocks for a long, long time. Almost as long as I’ve been watching the stock market, nearly 20 years. The reasons are numerous but boil down to Abbott’s position as an innovating consumer health giant. The company operates in several segments that put it in virtually every Dr.’s office in the form of single-use supplies, hand-held equipment, diagnostics, pharmaceuticals, and therapies.
Over the years, Abbot has been a very good dividend payer. The official history only lists 7 years of distribution increases but that doesn’t tell the whole story. That seven years is seven years since the spinoff of AbbVie (ABBV), a biopharma unit and maker of Humira. Before that, Abbott increased its distribution consistently for more than 20 years.
Because we can expect high-single-digit EPS growth for at least the next 4 years future increases are all but assured. The only thing I don’t like is the yield. At 1.80% it is below the broad market average but I’m ok trading a little safety for yield. I hear of new dividend suspensions every day. At this pace, it won’t be long before the S&P 500 yield falls below 2.0% again.
Secular Trends Lend Support
Abbot is supported by a number of secular trends that include the growing world population, the aging world population, the shift to outpatient procedures, and a growing number (and desire for) elective procedures. The consensus CAGR for the next five years is in the mid-single-digit range because of these trends and not expected to slow.
According to Deloitte, healthcare spending is expected to grow above 5% for at least the next three years. And that outlook did not include the multi-billion dollar packages we’ve been throwing at the coronavirus crisis. Much of the spending is centered on the U.S. but we can expect increases worldwide. Add in the coronavirus-induced spending and spending could easily top 10% this year alone.
Abbott Scores Lucrative Approval
Last week Abbott announced an emergency approval for a fast, easy-to-use, highly portable test for the coronavirus. The test uses molecular technology and can return a positive read in under ten minutes, a negative in under 15. The FDA approved the use of the test under the Emergency Use Authorization powers and should be available for general use very soon. While not a cure, it is a very important link in our line of defense.
The test runs on Abbott’s point-of-care ID Now platform. The ID Now platform is already used in many Dr.’s offices worldwide and upgrading to the system is simple. Abbott already has the COVID-19 assay available for use on their website so we can expect the first shipments this week. Abbott says it will ramp up production to 50,000 units per day starting April 1 and that is no joke.
The Technical Picture: A Correction To Trend, The Trend Is Up
The technical picture is encouraging. Abbott Labs has been in a long-term uptrend for many years and corrected back to trend. The trend held and the stock bounced, now price action is above the 30-day EMA. The EMA can be a powerful level of support, especially when it is consistent with previous levels of support as this one is now. That level of support is more of a zone, a zone that sparked some vigorous buying of ABT shares during the March Coronavirus-Correction.
The indicators are bullish as well. The MACD and stochastic are consistent with a bottom and bounce if not a full reversal. In the near-term, investors should expect ABT to continue moving higher. The next point of resistance is at the $85.60 level, not far above today’s price action, so caution should be exercised. If price action can regain the upper side of resistance at $85.60 I would fell more bullish and begin looking for a retest of the recently set all-time high.
Sometime in the very near future, ABT shares are going to retest support. This may occur now in a retest of the EMA, it may occur when price action hits the $85.60 level. With this in mind, I might enter a small position now and hold some capital back for additional purchases at that time.
10 Oversold Stocks That Are Ready For a Comeback
A fundamental concept of investing is to buy stocks at a value. One strategy used by investors is to focus on stocks that are oversold. Fundamental analysis can give investors an idea of certain stocks to look at. However, momentum is also important. For that reason, investors look for technical indicators to help them find oversold stocks that might be ready for a comeback.
One of the most popular tools is the Relative Strength Index (RSI). The RSI is a momentum indicator that measures the velocity and magnitude of price movements. The index also compares them with the magnitude of average gains and average losses.
The formula for calculating RSI is as follows:
RSI = 100 - ( 100 / 1 + RS)
Where RS (Relative Strength) is the average gain divided by the average loss.
Investors can use virtually any timeframe they wish. One of the most common is a 14-day RSI. Decreasing the number of days makes the RSI more sensitive to price changes. Conversely increasing the number of days makes the indicator less sensitive to price changes.
Investors may have different overbought or oversold indicators, but standard benchmarks are a stock may be overbought if its RSI exceeds 70 and may be oversold if its RSI exceeds 30.
The stocks in this presentation are chosen for a variety of fundamental and technical indicators. And all the stocks have been affected in one form or another by the Covid-19 pandemic.
View the "10 Oversold Stocks That Are Ready For a Comeback".