Not long after I wrote about this big health care firm in December 2010
, this stock began a nice hot streak. It's now up 31% in the past 12 months, compared with a 14% gain for the S&P 500 during the same time.
This is undoubtedly a great-performing stock.
But when I first suggested investing in this company, currently best known for its blockbuster rheumatoid arthritis drug Humira, I wasn't thinking much about what the stock might do in the next year or two. What I liked about it then, as I still do now, is how well it's likely to perform over a much longer time span.
So even though the stock's already up 31%, I think it has plenty more room to grow. In fact, I think it could easily rise another 50% during the next three to five years.
I'm talking about Abbott Laboratories (NYSE: ABT).
I referred to Abbott Labs as a health care company instead of a pharmaceutical manufacturer, because it's more than just a drug maker -- even though many investors probably only see it that way. Actually, Abbott Labs has so many irons in the fire that last November it announced it would split into two separate public companies by the end of 2012. The plan is for the medical products segment to retain the Abbott Labs name, while the newly-created research-based pharmaceutical segment will be spun off to existing Abbott Labs shareholders. Both stocks will be publicly traded.
Analysts project the medical products division to have $23 billion in sales, while the newly formed drug company should initially have $18 billion in annual sales.
Abbott will be in charge of the company's medical devices, which include blood analyzers and other devices for use by diabetics, such as blood glucose meters. It will also make Abbott's line of nutritional products, such as PediaSure formula for children and Ensure nutritional drinks for older adults. It also has a new stent -- a device that holds open blocked coronary blood vessels. The stent is already available in Europe and Japan and should soon be approved for use in the United States.
The new pharmaceuticals company will own several patent-protected blockbuster drugs -- aside from Humira, which I mentioned earlier -- including the HIV/AIDS treatment Kaletra, and the cardiovascular medications Tricor and Trilipix. Together, these four medications currently account for roughly $11 billion in annual revenue (with Humira alone kicking in $8 billion). This accounts for almost 30% of the $39 billion in total revenue Abbott Labs generated in the past year.
Splitting into two companies makes good strategic sense.