One of the metrics that analysts and strategists follow closely is the three-month earnings revision ratio. While analysts continue to make more downward to upward revisions, the number is improving. In a new report, Merrill Lynch says that one sector is leading the way in upward revisions and may be the best short-term bet for investors.
The Merrill Lynch’s equity and quant strategist Savita Subramanian and her outstanding staff point out that health care is the only sector besides financials with more positive than negative revisions to earnings over the past three months. We screened the Merrill Lynch health care universe and found four pharmaceutical stocks rated Buy with outstanding short-term and long-term potential. The Merrill Lynch team sees the sector as a top yield play and the stocks are underowned by portfolio managers.
This top pharmaceutical stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) is a leading diversified global health care company that develops, manufactures and markets branded generics, medical devices, nutritional products and diagnostic solutions. The company recently agreed to acquire the equity in Minnesota-based Tendyne Holdings that it does not already own for $250 million plus future payments tied to regulatory milestones. The Merrill Lynch team likes the purchase and the way the company is putting its substantial balance sheet to work.
The company also offers a diversified large cap play as earnings are split between five well-positioned business segments: Nutritionals, Vascular, Generic Pharmaceuticals, Diagnostics and Diabetes.
Abbot Labs investors are paid a 1.9% dividend. The Merrill Lynch price target for the stock is $53, and the Thomson/First Call consensus target is $53.34. Shares closed Wednesday at $50.48.