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Mead Johnson Nutrition CO (MJN), Abbott Laboratories (ABT): Which Infant Formula Stock is a Best Buy Now?

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I always consider a short-term stock price decline to be an opportunity for investors to accumulate a company’s shares at a low price. Recently, Mead Johnson Nutrition CO (NYSE:MJN) experienced a significant decline of 8.1% on the market to only $68.85 per share. The huge fall in its stock price was due to the news that China has launched an investigation into possible antitrust violations. Other infant formula manufacturers, including Danone and Abbott Laboratories (NYSE:ABT), also took a hit on the market after the news. While Abbott Laboratories (NYSE:ABT) was down by 1%, Danone’s share price declined by around 2.5%.

Mead Johnson Nutrition CO (NYSE:MJN)

Foreign players might have to reduce their product prices in China

According to Reuters, dated back 2008, because of industrial compound melamine in infant formula, at least six babies were killed and thousands of others have kidney stones, Chinese people turned to foreign milk products. Thus, it was a good chance for foreign companies to increase their product prices. Recently, People’s Daily reported that China had evidence that the milk-power companies have managed to increase their product prices about 30% since 2008. Right after that, Danone and Nestle announced that they would cut the price of their infant formula milk products in China. Personally, I would expect Mead Johnson Nutrition CO (NYSE:MJN) and Abbott Laboratories (NYSE:ABT) followed the same path.

Which one might be the most affected?

Mead Johnson Nutrition CO (NYSE:MJN) seems to be the most affected, as it derived the majority of its sales from the China/Hong Kong region. In 2012 around $1.16 billion, or 29.7% of the total revenue, was generated from China/Hong Kong, while the U.S. ranked second, contributing $990 million in sales in 2012. Moreover, Infant formula is the largest revenue contributor for the company’s business, generating nearly $2.3 billion, or 59%, of the total 2012 revenue. Within the huge 77.9 billion Yuan ($12.70 billion) Chinese milk formula market, Mead Johnson Nutrition CO (NYSE:MJN) has as much as a 13.5% market share.

Abbott Laboratories (NYSE:ABT) also had a significant position, but not as much as exposure like Mead Johnson Nutrition CO (NYSE:MJN), in the infant formula industry in China, with around 6.8% market share. However, Wells Fargo analyst Lawrence Biegelsen commented that because of the lower exposure and the company’s diversified business, the overall risk to the total company was minimized. Abbott Laboratories (NYSE:ABT)’s largest revenue and income contributor was the Proprietary Pharmaceuticals segment, with more than $18 billion in revenue and nearly $7.95 billion in profits in 2012. The Nutritionals segment contributed only $6.47 billion in sales and more than $1 billion in operating income for Abbott Laboratories (NYSE:ABT).

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