We continue to see attractive investment opportunities for our subscribers in top drug stocks, including this one. We also like spinoffs, which are about as close as you can get to a sure thing in investing.
This company combines both themes and we feel further gains lie ahead, which is why we recommend it as a Power Buy.
ABBVIE INC. (Symbol ABBV on New York; www.abbvie.com) makes medical devices, diagnostic tests, pediatric and adult nutritional products, and generic drugs.
The company was formed on January 3, 2013, when Abbott Laboratories (symbol ABT on New York) split into two publicly traded companies. Under the terms of the breakup, Abbott handed out shares of AbbVie to its shareholders in a tax-free transaction—that is, shareholders will only pay capital-gains taxes on their new AbbVie shares if they sell them.
Abbott Laboratories retained the company name and the ABT stock symbol. It makes medical devices, diagnostic tests, pediatric and adult nutritional products, and generic drugs.
Since its spinoff from Abbott Laboratories, AbbVie has depended heavily on its Humira drug to drive its own growth in both sales and earnings. As a treatment for various autoimmune disorders, blockbuster Humira is routinely prescribed by physicians to arthritis, psoriasis and Crohn’s disease sufferers.
Humira’s patent protection in the European Union (EU) expired in 2018. That let biosimilars (cheaper copies of complex biologic drugs) enter the EU market. But thanks to AbbVie’s success with U.S. lawsuits, the release of biosimilars in the U.S. has been put off until 2023.
This timeline is crucial for AbbVie. Humira accounted for 45% of its total revenue in 2020.
With the end of Humira’s U.S. patent protection approaching, AbbVie has continued to widen its revenue base. That includes focusing on product development and acquisitions. As a result, the company spends heavily on research and development (R&D): in 2020, it invested $6.56 billion in R&D, a solid 14.3% of its revenue.
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AbbVie’s revenue in the fourth quarter of 2020 shot up 59.2%, to $13.86 billion from $8.70 billion a year earlier. That beat the consensus estimate of $13.70 billion. On a comparable basis, revenue gained 6.8%.
Excluding costs to integrate its recent Allergan acquisition and other one-time items, earnings jumped 58.6%, to $5.23 billion from $3.29 billion. Due to the extra shares outstanding, per-share earnings rose at a slower rate of 32.1%, to $2.92 from $2.21. That also beat the consensus estimate of $2.85.
Growth Stocks: Earnings rise helps support a dividend hike
In February 2021, AbbVie increased its quarterly dividend 10.2%, to $1.30 per share from $1.18 per share. It now offers investors a high 4.8% yield.
In May 2020, AbbVie completed its massive $64.08 billion acquisition of Allergan, a global leader in medical aesthetics, women’s health, and eye care. Allergan is best known for Botox.
AbbVie is now adding to its offerings in the expanding global aesthetics business. Through its Allergan Aesthetics unit, the company has entered into an agreement with Chicago-based, privately held medical device company Cypris Medical.
Upon completion of a clinical study, which is to be initiated this year, Allergan Aesthetics will have an option to acquire Cypris Medical as well as its Xact device. Xact is a minimally invasive alternative option for performing face and neck lifts.
Allergan Aesthetics and Cypris Medical will partner to conduct the study, which will evaluate the safety and effectiveness of Xact in treating midface descent as well as for neck lifts. Notably, Xact’s innovative technology provides patients surgery-like results but in a minimally invasive manner and without use of the scalpel.
The deal, if successful, will further diversify AbbVie’s facial aesthetics portfolio, which already includes non-invasive treatment options like Botox Cosmetic and the Juvederm Collection of fillers.
As a conservative investor in my early 70’s I am left wondering what percentage of my total portfolio should be invested in Power Growth recommendations (if any). I like the yield of ABBV but see that roughly 25% to 30% of my portfolio yield less than 1% and mostly 0% in a time when income as well as growth are important. Google, CGI, Visa and Couche-Tard make up most of that 30%.
In Power Growth Investor, we analyze more aggressive stocks. In general, we think that they should make up no more than around 10% of a portfolio for conservative investors, or up to, say, 30% for more aggressive investors. That’s because even our Best Buys from among these stocks expose you to greater risk of permanent loss.
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As a conservative investor in my early 70’s I am left wondering what percentage of my total portfolio should be invested in Power Growth recommendations (if any). I like the yield of ABBV but see that roughly 25% to 30% of my portfolio yield less than 1% and mostly 0% in a time when income as well as growth are important. Google, CGI, Visa and Couche-Tard make up most of that 30%.
In Power Growth Investor, we analyze more aggressive stocks. In general, we think that they should make up no more than around 10% of a portfolio for conservative investors, or up to, say, 30% for more aggressive investors. That’s because even our Best Buys from among these stocks expose you to greater risk of permanent loss.