Surfing and Swimming
Invest Like Warren Buffett
Abbott Labs – A Sure Winner!
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Paul Goodwin’s Cabot Wealth Advisory of January 18 piqued my interest. In his Advisory, Paul likened the things you can do in the water with what you can do in the world of investing. I am interested because I am an avid swimmer after competing in college and in the 1990s as a Masters swimmer. Which brings me to my first missive.
And the winner is …
At the end of each year, Nancy Zambell’s Dick Davis Dividend Digest holds a contest to find who can pick a stock that will rise the most during the following year. In December 2012, I picked Kroger (KR) as my best stock for 2013. At mid-year, all participants were asked if they wanted to stay with their initial picks or switch to another stock. And since Kroger had advanced 50.7% thus far, I decided to switch to Trinity Industries (TRN) to add to my gains. Well, Trinity did pretty well, too, with a gain of 42.9% from mid-year to year-end 2013.
Why am I maundering about what I recommended in the Dick Davis Dividend Digest? For starters, my stock choices outperformed the choices of all other advisors except one. My second and third place finish reminded me of my swimming days when I often won second and third place, but first place was elusive. Yet, oftentimes I was able to win high point awards because of my accumulation of second and third place finishes. My accumulation of winners in the stock market during the past year and during nine prior years makes my Cabot Benjamin Graham Value Investor one of the best, and maybe even the very best advisory.
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My Average Gain in 2013 was 51.1%!
More important, my average gain for stocks sold in my Cabot Benjamin Graham Value Investor in 2013 was 51.1%—better than the Kroger and Trinity gains!
Ok, so I can pick winning stocks more often than not. What does this have to do with swimming? Paul Goodwin mentioned that some swimmers like to swim along at a steady pace, while others choose to jump on a surf board and ride the waves. Paul surmised that growth investors are the surfers, so I assume those swimming at a steady pace are the value investors. And I think that’s a good analogy. Surfers (growth) and swimmers (value) will both gain great satisfaction while they accomplish their goals using quite different methods. I’ll stick to swimming—it’s what I do best in the real world, and in the investment world, too!
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Kroger UP 56%
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One of the blue-chip stocks I have been recommending lately is a company that has been around for a very long time and has produced amazingly steady growth, so steady the company has raised its dividend every year for 42 consecutive years!
Abbott Laboratories (ABT 39.40)
Following the spinoff of its research-based prescription drug business at the beginning of 2013, ABT is now focused on developing and manufacturing nutritional products, diagnostic equipment, generic drugs, and medical devices.
Founded in 1888 with headquarters north of Chicago, Abbott is the leading provider of blood screening products used to detect pregnancy, heart disease, prostate cancer, hepatitis, HIV, sports doping, and other medical conditions. The company is also a leading producer of coronary metallic drug-eluting stents, LASIK devices used in laser vision surgery, insulin pumps, and pediatric and adult nutritional wellness products.
Abbott’s sales in emerging markets, which account for 40% of sales, are accelerating. To add to that growth, the company recently introduced several new diagnostic tests and 19 nutritional products.
Abbott completed two acquisitions in its Medical Devices business in 2013: IDEV Technologies, which expands Abbott’s endovascular segment, and OptiMedica, which provides an immediate entry into the laser cataract surgery market.
Sales are estimated to have increased 3% in 2013 and EPS climbed 22%. Abbott increased its quarterly dividend from $0.14 to $0.22 per share, which marks the 42nd consecutive year that it has increased its dividend payout. The dividend yield is now 2.2%. Sales growth was negatively impacted by a recall by one of Abbott’s suppliers in the International Nutrition division. This was more than offset by strong performance across its other businesses.
I expect sales to increase 7% and earnings per share to climb 12% to 2.25 in 2014. Solid growth in nutritional product and diagnostic equipment sales will boost results. The company could exceed my forecast if the slow growth in pharmaceutical and medical device sales begin to improve.
Abbott shares sell at a reasonable current P/E (price to earnings ratio) of 19.7. The company’s balance sheet is very strong with lots of cash and low debt. Abbott shares have the best appreciation potential of any blue-chip healthcare stock. Buy at the current price.
Until next time, be kind and friendly to everyone you meet.
Sincerely,
J.Royden Ward
Chief (and Award-Winning) Analyst
Cabot Benjamin Graham Value Investor
Editor’s Note: You can find additional stocks selling at bargain prices in the Cabot Benjamin Graham Value Investor. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for over 275 stocks plus my up-to-date predictions for the Dow Jones Industrial Average.
