Abbott Labs is a much better company than Johnson & Johnson, Cramer told viewers on Tuesday.

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According to both the technicals and the fundamentals, Abbott

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[ABT  Loading...      ()   ] is superior by every metric, which is why Cramer recommended ABT over J&J

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While the charts show Abbot Labs is set to break out, Cramer said, Johnson & Johnson looks ready to break down. Abbott jumped 20% between August and October, breaching its 200-day moving average. The stock has since pulled back, but only on low volume, something technical analysts interpret as a false tell. To them, the truth is found in high volume. ABT had since been trading in a narrow range between $50 and $52.50, but has broke out yet again. One of Cramer’s favorite chartists sees this as a case of exhausted supply and expects Abbott to push higher.

J&J, on the other hand, has been stuck in a tight $2.50 range, or trading channel, since the end of July. And a look at the volume shows that JNJ, unlike Abbott, is being sold into strength rather than bought on weakness. That’s what happened when Johnson & Johnson broke through its trading channel on Oct. 12: High-volume selling brought the stock right back down, crashing through the low end of the channel and into its 200-day moving average. If JNJ is headed in any direction, down seems the most likely direction.

The fundamental case against Johnson & Johnson seems just as damning. Four of the company’s key drugs – Floxin for chemotherapy, Remicade for autoimmune disease, Velcade for a kind of blood cancer and the anti-psychotic Risperdal – make up what Cramer described as a long-term patent problem. J&J looks to be falling off a patent cliff, he said, and is not making up for it with new products, which right now account for just 5% of sales. In fact, new product launches won’t catch up with Abbott Labs until 2013.

At the same time, pricing pressure is hurting the medical-device division’s margins, and J&J plans to cut 6,000 to 7,000 jobs to boost profitability, something the company seems able to achieve only through cost cuts. That was apparent in J&J’s better-than-expected quarter, which was a result of decreased research-and-development spending and lower taxes.

Abbott meanwhile beat earnings estimates when it reported on Oct. 14 and raised its guidance, all thanks to increased revenues. And earnings growth should clock in at 11% annually through 2015, which is the best growth rate in big pharma. Compare that to J&J’s 7%.

Abbott has the better pharmaceuticals business, Cramer said. Humira, the company’s rheumatoid arthritis drug, was up 24% last quarter, and Xience, a drug-eluting stent and powerful HDL cholesterol franchise, continued to dominate. There’s also Abbott’s Nutritional Products division, which grew 10%. And the recent purchase of European firm Solvay will boost earnings down the road thanks to the currency translation.

All this and Abbott trades at only a slight premium to Johnson & Johnson: 12.6 times 2010 earnings versus J&J’s 12.4. It’s pretty easy to see then why Cramer urged viewers to buy ABT.

“Abbott’s clearly the stronger player,” he said.

A previous version of this story misstated Johnson & Johnson's patent issues. Remicade's patent lasts until 2018, and Velcade's patent lasts until 2015. Floxin has already lost patent protection.

Cramer’s charitable trust owns Abbott Labs.

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