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Healthcare's Most Underrated Stock

Down 7.1% this year, the healthcare sector is the fourth biggest loser in the S&P 500 courtesy uncertainties surrounding the implementation of healthcare reform. But to Cramer, one drug company is down undeservedly and he thinks it could soon rebound: Abbott Labs.

The healthcare company lost 11.4% of its value this year, in part, because of its exposure to Europe — 24% of the company's sales come from the Continent, Cramer noted. But the CEO has taken a very conservative stance on its European business, which has been incorporated into its guidance. Right now, Abbott trades at 10 times next year's earnings despite the fact that it's growing earnings at 11% annually through 2015, which is twice the pace of other pharmaceuticals. Cramer likes the company's range of drugs and little exposure to generics. Its flagship product, Humira, is a psoriasis drug and anti-inflammatory, which makes 35% of the company's sales and is growing by 20%.

Abbott has also made "savvy" acquisitions in emerging markets, Cramer said, which now account for 20% of its revenues. Abbott recently purchased Piramal Healthcare Solutions, for example, which is a branded generic drug maker in India — a $8 billion pharmaceutical market that's expected to double in size by 2015. Other transactions should help grow Abbott's sales in emerging markets from $8 billion to $15 billion in 2015, Cramer said.

The Mad Money host acknowledged that Abbott's stock has been criticized for having a smaller dividend relative to other big pharmaceutical companies. But with a decline in share price and a recent dividend hike, Cramer said, Abbott now boasts a 3.7% yield. For 38 years, the drug stock has increased it's dividend and with more growth than other companies, Cramer expects more dividend boosts in the future.

Cramer does not expect a "blow-out quarter" when Abbott reports next Wednesday and noted that the stock has a history of trading down after it reports. He thinks the company will post "decent" in-line results and will reiterate its earnings guidance. He would buy some now and then wait for the quarter, so that you can buy more incase the market doesn't like its quarterly results.

With a strong growth pipeline, juicy dividend yield and exposure to emerging markets, Cramer thinks this stock will rebound hard.

Tune into Mad Money all week for Cramer’s series on the “Biggest Losers,” or the most damaged stocks in the most damaged sectors in the first half of 2010. But unlike the contestants on that popular NBC show, Cramer’s hoping these names regain their lost pounds, or points, and he thinks they will. The last installment comes Friday during Mad Money at 6 & 11 PM ET on CNBC.

Cramer's charitable trust owns Abbott Labs.

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