Abbott Labs is an easy choice over Siemens
Dear Mr. Berko:
I’m thinking of buying 100 shares of Siemens or 300 shares of Abbott Labs. My broker would rather I purchase a mutual fund that owns both issues. As you might suggest, he’s trying to make a 6 percent commission; but, as you know, his American Fund recommendation has an excellent record. I want to buy either Siemens or Abbott and would appreciate your recommendation. I have a 10-year time frame, at which time I will be 68 and ready to collect Social Security.
E.P., Joliet, Ill.
Dear E.P.:
Siemens AG (SI-$136.20) is a $110 billion revenue company home ported in Munich. This huge conglomerate generates billions in revenues from electronics, engineering, health care, energy, heavy machinery, transportation, finance, real estate, communications, infrastructure construction, scientific and medical equipment, information services, power plants, software services, etc.
Earnings for 2011 are expected to rise to $9.50 per share from last year’s $6.50, and the Street thinks SI can earn $10.70 in 2012. SI’s balance sheet is as strong as oak and rock; it’s managed by a group of Teutonic aristocrats, and many on the Street compare SI’s business model to General Electric’s.
Siemens’ stock has recovered nicely from its $44 low in early 2009, and the generous $3.72 dividend yields 2.7 percent. Therefore Fidelity, Wellington, Franklin, FMR, etc., hold billions of dollars of SI shares, believing that the company has an enormously profitable future.
But I do not trust a company that does billions of dollars of business in Iran, building its locomotives, repairing its infrastructure, constructing power plants and otherwise providing financial assistance, guidance and comfort to the Iranian government. This is a case in which money, corporate greed and profit trump national security and patriotism. Siemens is on my “I will never buy” list.
So it’s a no-brainer: Abbott Laboratories (ABT-$53.11), without question, is an infinitely superior long-term investment. This $35 billion drug company has been discovering new medicines and developing new technologies during the last dozen decades. Its highly regarded diagnostics division, its top-tier vascular sector, its leading nutritional products department and an impressive lineup of patent-protected drugs from its pharmaceutical division give ABT a strong economic moat.
Though diagnostic and nutritional revenues barely budged last year, pharmaceutical and vascular revenues grew 22 percent and 19 percent, respectively, helping earnings increase from $3.72 per share in 2009 to $4.18 in 2010. It should be noted that nutritional sales were severely affected last year by a huge infant formula recall. But nutritionals are back on track, and ABT is on track to earn $4.65 per share this year, sporting an attractive price-to-earnings ratio of 11.4.
Those earnings should encourage management to increase its $1.92 dividend to $2.09 in the coming dozen months, which would be ABT’s 36th consecutive annual dividend increase.
The current 3.8 percent yield plus continued annual dividend increases make it easy to hold this stock for 10 years.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com
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