We're calling up a health care stock from our Bullpen watch list, starting a new position

Published Mon, Jan 29 20249:03 AM EST

Shortly after the opening bell, we're initiating a position in Abbott Laboratories (ABT), buying 275 shares at roughly $112 each. Following the trade, ABT will represent roughly 1% of Jim Cramer's Charitable Trust. We're pulling the trigger on this Bullpen name following the stock's roughly 2% pullback on earnings, which were released on Jan. 24. Followers of the Trust know that we caught a double in Abbott from the summer of 2017 through early 2022 when we exited near $120 per share. At the time, we didn't want to overstay our welcome with our Covid winners. Abbott shares have been choppy but mostly sideways since then, biding their time as the market struggled to figure out how to properly value the company amid declines in Covid testing and growth in the firm's "base" business. Now that Covid testing has become less of a driver of earnings, we think enough time has passed to take another look at this leader in medical devices and other health-care solutions. ABT 5Y mountain Abbott Laboratories 5 years Abbott's best-known franchise is medical devices. The group became a little controversial over the summer after Novo Nordisk announced the results of a trial that evaluated weight loss drug Wegovy's ability to reduce negative cardiovascular outcomes. What the market assumed is that the rise in usage of these GLP-1 drugs, like Wegovy and Novo's Ozempic, which help patients manage diabetes better, lose weight, and generally become healthier, would disrupt Abbott's leading diabetes and cardiology units. Abbott is the maker of the FreeStyle Libre continuous glucose monitoring system, which is a market leader in diabetes care and by sales dollars has become the most successful medical device in history. The way Abbott's stock has traded, it's acted like GLP-1s were a cure and people would no longer need these devices. The thought was that the adoption of GLP-1s, which also include Club name Eli Lilly 's Mounjaro for diabetes and Zepbound for weight loss, and the Libre system were a zero-sum game and both could not coexist. As it turns out, the company's studies show GLP-1 adopters are seeing better results when they use Libre along with the drugs. To be fair, we're still cautious about the impact this new class of drugs will have on the food industry, especially salty snacks and confections, but less so on the health-care side. Outside of devices, Abbott has some other interesting parts of its business, including Nutrition, which management thinks will grow around 6% this year. Believe it or not, pediatrics isn't the exciting part of the story even though it has returned as the market leader after a rough 2022 due to recalls. We're more focused on the innovations happening on the adult side with its nutrition shakes. We think these could be of good use to those trying to limit the muscle loss associated with GLP-1 use. Abbott sees an opportunity here as well, and they plan on launching a new nutritional drink specifically for GLP-1 users later this year. Thirty million people in the United States could be taking these drugs by 2030, according to JPMorgan, meaning a lot of people could be taking daily protein supplements in the future. Another one of Abbott's main segments is Established Pharmaceuticals. Sales from this division come from the company's portfolio of established drugs — branded generic medicines — that are sold in both developed and key emerging markets. While not the most glamorous business, it has grown organic sales by double digits for three straight years and has expanded margins. The company also has a big Diagnostics business that is best known for its Core Laboratory suite of products and rapid diagnostic tests. The main brand under Core Laboratory is the Alinity family of systems, which are designed to "run more tests in less space, generate test results faster, and minimize human errors." On Abbott's fourth-quarter earnings call, management pointed out that Alinity continues to have high contract renewal re-rates, and it's winning new business. Now that the market is coming around to the idea that Abbott isn't just a Covid testing company and its premier diabetes franchises won't be wrecked by GLP-1s, we think it's time to appreciate it again for all the growth and innovation that's happening here. The company reported solid earnings Wednesday morning (Jan. 24), capping off a terrific 2023 during which organic revenue, excluding Covid testing sales, grew 11.6%. Over the full year, Medical Devices organic sales increased 14.2%, Nutrition was up 13%, Established Pharmaceutics grew 10.9%, and Diagnostics, ex-Covid tests, increased 5.8%. For 2024, Abbott expects organic sales to increase 8% to 10%, which is still faster than the 7% rate it grew at before the pandemic. There are not a lot of companies of Abbott's size — almost $200 billion market cap — that can say they are putting up those types of numbers, let alone in health care. Yet, the stock dipped on earnings day. Sure, Q4 earnings per share matched expectations at $1.19 and the midpoint of its full-year outlook range of $4.50 to $4.70 was a few pennies shy of $4.64. However, management is historically conservative at the start of the year, so we think they are setting themselves up for beats and raises. Now that expectations have cooled down, we think this pullback is one worth buying. With this buy, we're initiating Abbott Labs with a price target of $130, which would put the stock's multiple at around 28 times forward earnings. While that's a premium to its historical average of around 24 times, we think it's justified by the company's sustained high growth rate. (Jim Cramer's Charitable Trust is long ABT, LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.