Polen Focus Growth: “Abbott Laboratories (ABT) was the Lone Detractor in the Quarter”

Polen Capital, an investment management firm, published its “Polen Focus Growth” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 13.25% was delivered by the fund for the Q2 of 2021, outperforming both its Russell 1000 Growth benchmark that delivered an 11.93% return, and the S&P 500 Index that had an 8.55% gain for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Polen Capital, the fund mentioned Abbott Laboratories (NYSE: ABT) and discussed its stance on the firm. Abbott Laboratories is a Chicago, Illinois-based medical device company with a $221.3 billion market capitalization. ABT delivered a 14.10% return since the beginning of the year, extending its 12-month returns to 12.26%. The stock closed at $124.74 per share on August 25, 2021.

Here is what Polen Capital has to say about Abbott Laboratories in its Q2 2021 investor letter:

Abbott Laboratories was the lone detractor in the quarter as the company preannounced that revenue and earnings this year would be below their previous guidance. We still expect the company to grow earnings more than 20% this year and continue double-digit earnings growth in the years to come. However, weakness in COVID-19 testing revenue is primarily responsible for the guidance reduction. Abbott is a leader in multiple types of COVID-19 diagnostic tests, and the largely successful vaccine rollout globally is leading to less COVID testing than the company expected. Two years ago, these tests obviously accounted for $0 in revenue but recently accounted for nearly $10 billion in annualized revenues as of the fourth quarter of 2020. We have expected COVID testing revenues to decline sequentially every quarter and eventually level out at less than $1 billion per year. We are not surprised by the current reality, but the decline has been more rapid than what management had expected.

Abbott is a diversified medical products company with likely strong growth to come from its core businesses outside of COVID testing— our investment thesis was not dependent on pandemic related revenue. While the reduction in guidance is atypical for Abbott’s conversative management team, we do not believe it changes our long-term growth assumptions or the investment case in Abbott.”

Based on our calculations, Abbott Laboratories (NYSE: ABT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ABT was in 61 hedge fund portfolios at the end of the first half of 2021, compared to 65 funds in the previous quarter. Abbott Laboratories (NYSE: ABT) delivered an 8.13% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.