Abbott and Merck represent two pharmaceutical plays, although Abbott’s impending split into two makes them rather different situations. Meanwhile, Colgate-Palmolive and Duke Energy are two good dividend plays. Let’s see what specifically has been happening with these 5 stocks:
Abbott Laboratories (ABT, Financial) has been moving up lately, although investors are continuing to speculate how the company’s planned split-up will work out. Current plans indicate that there will be a prescription drug company and then everything else will remain under the name Abbott Laboratories. One estimateputs the worth of the prescription business at $45 billion and the new Abbott Laboratories at $52 billion. Considering Abbott Laboratories’ market cap is currently just under $87 billion, that move would make for some serious value creation. In fact, because each business is fundamentally strong by itself, investors should seriously consider buying ABT shares prior to the split-up. Another interesting story comes in the form of Abbott’s ESPRIT I, a new clinical trial that could help some patients who suffer from claudication. Here’s what Dr. Simonton from Abbott Vascular had to say: “ESPRIT I is the first clinical trial to evaluate our bioresorbable technology in patients with disease in the SFA and iliac arteries. In addition to ESPRIT I, we also are investigating our bioresorbable therapy for the treatment of below-the-knee critical limb ischemia – a severe form of PAD – in the ABSORB BTK trial.” I find the company's management to be superb. As for value metrics, other major drug manufacturers such as Merck (MRK, Financial), Roche (RHHBY.PK, Financial), and Sanofi (SNY, Financial) all have higher price/earnings to growth and price to sales ratios than Abbott.
Colgate-Palmolive Co. (CL, Financial) is on an upward trend, and the stock remains a great choice for dividend investors. On the other hand, the company has hit a bit of a speed bump in France. In fact, Colgate-Palmolive and Procter & Gamble (PG, Financial) are being fined for colluding on laundry detergent prices with Unilever and Henkel. In response, Colgate-Palmolive released this statement: “The events investigated by the Authority concerned the heavy duty detergent market, a market in which Colgate-Palmolive was a minor player in France and divested in 2003.” A recent refinancing transaction for Colgate-Palmolive was also in the news lately. Essentially, the issue is that many banks aren’t as interested as they used to be in lending to high-grade corporations like Colgate-Palmolive. Important competitors for Colgate-Palmolive include Church & Dwight (CHD, Financial), Clorox (CLX, Financial), and Procter & Gamble. Colgate-Palmolive is the most expensive of those stocks using price/earnings to growth and price to sales ratios. Terrific margins of 57.89% gross and 23.46% operating help explain that though. As for cash flows, $110 million flowed out of Colgate-Palmolive during 2010 while $455 million came in during the first 9 months of 2011. The turnaround was mostly due to inflows from lending.
Fifth Third Bancorp (FITB, Financial) has been moving up nicely, as I forecasted two months ago, and the company is doing well in its lending to businesses. In fact, the company recently announced that so far in 2011, $19.5 billion in new and renewed credit has given out to business clients. Here’s what Fifth Third’s John Bultema had to say: “One critical way banks can help [economic growth] is by providing these businesses access to credit. Fifth Third has made a clear commitment to do just that.” Meanwhile, Fifth Third remains a wise dividend play. With a dividend yield of 2.70%, this stock could be a good choice for dividend investors who want some exposure to financial stocks. Analysts like Fifth Third too. Zacks is rating Fifth Third as a strong buy for the next 1 to 3 months, and Fitch recently upgraded Fifth Third’s credit outlook to positive. Key factors in the Fitch upgrade related to Fifth Third’s business model as well as its increasing market share. Important competitors for Fifth Third include PNC Financial Services (PNC, Financial) and U.S. Bancorp (USB). Fifth Third is the most expensive using price/earnings to growth but the cheapest using price to sales. Two more statistics to consider are quarterly revenue growth of 39.80% and operating margin of 33.56%.
Merck & Co. Inc. (MRK) has been skyrocketing, and Forbes is taking notice. As discussed in that article, the stock’s Relative Strength Index suggests it may be overbought. On the other hand, MRK’s dividends certainly make it an appealing stock. Meanwhile, Merck’s Isentress drug has been in the news lately. Specifically, Merck is decreasing the price of the medicine for state AIDS programs that help those who can’t afford the drug on their own. Additionally, the Food and Drug Administration just approved Isentress for patients between the ages of 2 and 18. In other news, Merck will have to pay the state of Massachusetts to settle a fraud case related to Medicaid. Merck still denies wrongdoing but said it hoped to remove “the uncertainty of ongoing litigation.” Important competitors for Merck include Bayer (BAYRY.PK), GlaxoSmithKline (GSK), and Pfizer (PFE). Price to earnings, price/earnings to growth, and price to sales ratios for Merck fall in the middle of those other stocks, as do its margins. As for cash flows, $1.589 billion came in during 2010 and $3.353 billion came in during the first 9 months of 2011. That improved cash flow can mostly be attributed to increased operating cash flows as well as fewer acquisitions than in 2010.
Duke Energy Corporation (DUK, Financial) has been moving up the past few days, as investors seek to snap up the stock’s 4.80% dividend yield. Those dividends are propelled by a strong business model, one that includes acquisitions when necessary. Indeed, one of Duke Energy’s joint ventures will be purchasing theZephyr Power Transmission Project from one of Pathfinder Renewable Wind Energy’s subsidiaries. The project will help distribute wind power from Nevada to other states in the Southwest. Another Duke Energy joint venture, this one with American Electric Power (AEP), will commence work on the Greentown-New Reynolds project soon. That’s expected to cost $245 million, but many investors expect the project’s payback period to be shorter than average. One other energy company to keep an eye on besides Duke Energy and American Electric Power is Constellation Energy (CEG). That stock has a relatively high price to earnings ratio of 19.70, although price to sales of 0.57 is quite low. This disparity can be explained by Constellation’s low margins – those numbers are 14.41% gross and 6.19% operating. As for Duke Energy’s cash flows, $128 million came in during 2010 and $362 million came in during the first 9 months of 2011. Operating cash flows will probably be down a bit compared to last year.
