There’s More Than One Reason To Love This Stock
AbbVie (ABBV) keeps popping up on my radar and for good reason. The company is a rapidly growing dividend payer with robust dividend growth in the outlook. With the Allergan takeover recently completed and a pipeline flush with new treatments, growth in both revenue and dividends should range in the double digits over the next few years. Based on the charts, I’d have to say the market agrees with me. Up roughly 50% from its correction low, it looks like AbbVie shares are poised to retest and set a new all-time.
AbbVie made headlines this morning that bode well for the future, the company announced a new collaborative effort in the search for COVID-19 treatments. The company will be working with Harbor Biomed, Utrecht University, and Erasmus Medical Center to develop an antibody treatment based on the fully-human COVID-19 antibody 47D11. The terms of the agreement obligate AbbVie to aid in the preclinical preparations for clinical trials that may begin as early as the 4th quarter of 2020. What AbbVie gets in return is an option for the exclusive rights to distribution once the treatment is approved.
The Growth Outlook Is Strong
AbbVie’s growth outlook was strong even before the addition of Allergan. At the top line, the consensus for growth is in the high-double-digits, 35% this year, and 19% the year after. At the bottom-line, results are equally strong at 16% and 14%. Further out, consensus moderates to flat EPS and revenue but those estimates don’t account for sales of future products already in the pipeline. In addition to today’s news, there have been several developments over the past month that promise to boost results as early as the second half of 2020.
- AbbVie received approval for the expanded use of Rinvoq. Rinvoq is a treatment for rheumatoid arthritis and now psoriatic arthritis. In other news, three separate studies of Rinvoq show sustained and durable benefits from its use. Patients were still seeing improvement after the 72 and 84-week marks. A third study shows the drug efficacy in patients as far out as 96 weeks.
- AbbVie secured exclusive rights to Jacobia’s SHP2 pipeline. Jacobio is a Beijing-based cancer research company focused on inhibiting cancer-cell growth. The deal grants AbbVie exclusive rights to global development and marketing.
- AbbVie’s Oriahn received expanded approval from the FDA. Oriahn is a treatment for endometriosis and now other ailments of the uterus.
A High-Yield Dividend Growth Stock
When I say that AbbVie is a high-yielding dividend-growth stock I mean it is paying above 5.0% at today’s prices. That’s more than double the S&P 500 average and, frankly, blows the pants off of anything you can get with a bond. The payout is safe too, the payout ratio is a low 45%, and will only get safe over the next two years. Projecting the current payout to calendar 2021 the ratio falls below 40% and supports the idea of future increases.
Regarding future increases, AbbVie is no Dividend Aristocrat but it does have a few things going for it. For one, it has been paying a dividend and increasing it annually ever since the IPO 7 years ago so there is an expectation for increase built into the market. For another, in that time, the increases have averaged more than 20% annually so there is an expectation the next will be equally large. Its highest-yielding competitor is Gilead at 3.5% (most are sub-3%) and Gilead just doesn’t have the same outlook for dividend growth.
The Technical Outlook: On The Verge Of Breaking Out
The technical outlook for AbbVie is bullish with one caveat. After making a strong Vee-shaped recovery, the stock is trading just beneath a major resistance target that needs to be overcome. If that happens I see this stock surging to retest a multi-year high on its way to set new highs later this year.
Looking at the chart, you can see price action has been consolidating in the $88.50 to $93.50 range. The good news is that it is showing signs of solid support at $88.50, the bad news is that resistance is still holding price action in check. The indicators are mixed so not much help from them, at best they indicate the consolidation range will persist for the next week or so. If price action falls from this level, support is likely at $88.50 level and then $84, both of which would be attractive entry points.
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20 "Past Their Prime" Stocks to Dump From Your Portfolio
Did you know the S&P 500 as we know it today does not look anything close to what it looked like 30 years ago? In 1987, IBM, Exxon, GE, Shell, AT&T, Merck, Du Pont, Philip Morris, Ford and GM had the largest market caps on the S&P 500. ExxonMobil is the only company on that list to remain in the top 10 in 2017. Even just 15 years ago, companies like Radio Shack, AOL, Yahoo and Blockbuster were an important part of the S&P 500. Now, these companies no longer exist as public companies.
As the years go by, some companies lose their luster and others rise to the top of the markets. We've already seen this in the last few decades with tech companies surpassing industrial and energy companies that once dominated the S&P 500. It's hard to know what the next mega trend will be that will knock Apple, Google and Amazon off the top rankings of the S&P 500, but we do know that companies won't stay on the S&P 500 forever.
We've identified 20 companies that are past their prime. They aren't at risk of a near-term delisting from the S&P 500, but they are showing negative earnings growth for the next several years. If you own any of these stocks, consider selling them now before they become the next Yahoo, Radio Shack, Blockbuster, AOL and are sold off for a fraction of their former value.
View the "20 "Past Their Prime" Stocks to Dump From Your Portfolio".