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Tickers in this Article: ABT, JNJ, MDT, BSX
For investors with a five-year investment horizon, Abbott Laboratories (NYSE:ABT) could be a cure for an ailing portfolio. The company announced $5 billion stock buyback program Monday and also announced development of a "bio-absorbable stent" that leaves arteries much the same as if they had never been subjected to an operation.

These new developments added more optimism to an already solid quarter that saw continued revenue growth and profit despite the weakened macroeconomic environment.

Stock Buyback
On Monday, the company announced $5 billion would be used to purchase company common shares. During volatile markets, the buyback will provide support to the stock price until market sentiment improves. This initiative by the board of directors makes investing in the company's stock in today's environment more palatable, allowing investors to sustain moderate share price volatility while waiting for company business activities to drive the share price higher.

This buyback is in addition to the company's generous cash dividend yield ($1.44, 2.7%). At a price of $54.78, the company's stock is fairly valued, reflecting a price-to-earnings ratio valuation of 20 times (trailing), which approximates the S&P 500 trailing price-earnings ratio of 20 times. The company's stock looks attractive at this level (up to $55 per share near term) for long-term buy and hold investors. Short-term traders should speculate elsewhere or wait for market pullback. (For related reading. check out A Guide To Portfolio Construction.)

The New Stent
Also on Monday, Abbott Labs announced the success of a new type of stent, XIENCE V, a "now you see it, now you don't" type of stent that could have significant multi-billion dollar impact in revenue generation when it is introduced. These products are used in cardiac operations to open clogged arteries. Management plans to bring this stent to market by the year 2012.

After the results of a recent two-year study, the XIENCE showed little, if any, trace of entering the arteries. Stents, which have evolved over the years into multiple forms and types, are an intensely competitive business. Johnson & Johnson (NYSE:JNJ), Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) are the main competitors in this business, and over the years, these companies have played musical chairs with respect to taking the latest leadership role in technological breakthroughs.

Stent operations can influence the strength of the artery walls, necessitating follow-up surgeries. However, Abbott's announcement on Monday, the development and successful preliminary testing of a "bio-absorbable stent", could have a dramatic influence on the competitive dynamics of the market if it is approved by the regulatory authorities and is proven effective. "The early success of our bio-absorbable stent marks the dawn of the beginning of a new era in the history of interventional medical device treatment," said John M. Capek, executive vice president of Medical Devices for Abbott Labs.

Solid Record of Growth
Abbott Labs is a global healthcare company whose business is focused upon the discovery, development, production and marketing of pharmaceuticals and medical products. In addition to drugs, the company's medical products are developed for end-markets such as nutritional products, medical devices and diagnostics equipment. The company employs more than 68,000 people and markets its products in more than 130 countries. Return on equity has averaged more than 20% in the last five years. Abbott Labs maintains good control of its working capital with inventory and receivables turnover that exceed the industry average.

The company's debt to equity ratio of 73% is moderately high, and above the industry average of 51%, but remains very manageable in light of the company's stable end-markets and solid record of profitability. Abbott Labs has increased annual sales by an average 11% and net income by an annual average of 7% over the last five years.

Expectations for Continued Growth
In July 2008, management revised its expectations for earnings, increasing full-year earnings per share guidance to a range of $3.24-3.28, up approximately four cents per share from previous guidance. This represents about 15% growth in normalized earnings and approximates the growth in revenue expected by the company. Abbott Labs announced earnings on Wednesday for the third quarter. Third-quarter earnings per share of 79 cents exceeded previous guidance of 76-78 cents per share.

Abbott raised its guidance again on Wednesday, increasing full year earnings expectations to the $3.31-3.33 per share range. In addition, the company experienced excellent top-line growth during the quarter, increasing sales by more than 17% from last year. Abbott Laboratories will likely continue this good performance, given the strength of its products and end-markets, making it a good portfolio addition during uncertain economic times. (For added insight, try Can Earnings Guidance Accurately Predict The Future?)

Salve For the Wounded Portfolio
A solid and well-diversified global product pipeline, enhanced by significant recent announcements of the development of the bio-absorbable stent, bodes well for this company. Abbott has a solid long-term record, continued good short-term expectations for earnings and sales, good management of working capital and product costs and end-markets with steady product demand. This company could be a solid addition to virtually any long-term investor's portfolio.

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