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Why Polen Capital is Bullish on Abbott Laboratories (ABT)

Polen Capital Management, LLC, an independently-owned global investment manager, recently published its first-quarter focus growth commentary – a copy of which can be downloaded here. During the first quarter of 2020, the Polen Focus Growth Composite Portfolio returned -13.03% gross of fees, while the Russell 1000 Growth and S&P 500 indices were down 14.10% and 19.60%, respectively.

In the said letter, Polen Capital highlighted a few stocks and Abbott Laboratories (NYSE:ABT) is one of them. Abbott Laboratories is a medical devices and health care company based in Illinois. Year-to-date, ABT stock gained 7.2% and on April 27th it had a closing price of $94.95. Its market cap is of $164.5 billion. Here is what Polen Capital said:

“We eliminated our position in Nestle in the first quarter and redeployed the proceeds to build our position in Abbott Laboratories to one of our largest holdings. We’ve owned Nestle as a “safety” holding for nearly six years. Revenue growth through our holding period has been slower than we hoped, as barriers to entry in the consumer product/food areas have come down in a world of digital advertising and strong private label competition. While we believe that Nestlé has taken positive steps to boost growth, we expect ongoing headwinds to stifle the pace of revenue growth. Nestle no longer seems to possess the unique attributes that we would like to see for our U.S.-focused Focus Growth strategy to continue holding a business domiciled outside the U.S.

We believe our investment in Abbott Laboratories is a better allocation of that capital, which is trading at a similar valuation to Nestle. Abbott should be able to grow revenue and earnings meaningfully faster than Nestle without the long-term headwinds. We expect that purchases of certain Abbott medical devices could be deferred for a few months as hospitals focus more exclusively on treating COVID-19 patients. Still, we expect Abbott should see strong revenue and profits growth from most of its businesses over the long term. Additionally, our Abbott position does not ascribe any value to the company’s recently launched rapid diagnostic tests for COVID-19. We do not expect this test to change the value of the company significantly over the longer term. At the same time, news of the test’s release moved the company’s share price higher. This supports the view we expressed earlier that companies seen as having fortuitous business models in the current environment have appreciated together.”

In Q4 2019, the number of bullish hedge fund positions on ABT stock decreased by about 5% from the previous quarter (see the chart here).

Do you think it is appropriate to buy ABT stock?

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

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