AbbVie Dead Cat Bounce

AbbVie missed earnings estimates on the top & bottom line, causing their stock to slide over 6% Friday. I traded in and out of it 3 times for small gains & still have a position in them going forward.

President Trump signed a bill re-opening the federal government for 3 weeks, which should help relieve some of the short term concerns in the market. China is engaging in stealth QE & the Federal Reserve floated a trial balloon for ending their balance sheet run off far sooner than most anticipated. The Dow Jones Industrial Average, Nasdaq, S&P 500 & the Russell 2000 Index were all up 3/4% or more on the day, which makes the recent decline in AbbVie stand out even more. ABBV is down over 10% so far this year while the broader market is up 6% to 7%, offsetting some of the steep declines seen in December.

Longer term I am iffy on the healthcare industry, as at some point it becomes such a drag on the domestic economy it could literally blow up the global economy.

 “In 2018, Americans spent nearly $1.2 trillion on hospital care, representing approximately $9,200 for the median household, or 14.7 percent of median household income. That exceeds what the average family paid in federal income and payroll taxes. By 2026, projected hospital spending will exceed $13,000 per household: nearly one-fifth of household income.”

But the tighter labor market is causing lower strain on some parts of government budgets as people who were disabled are now opting to work. On an earnings basis AbbVie is priced quite cheaply, particularly given their history of increasing dividend payments combined with a current yield above 5%. The biosimilars competition in Europe was a known issue before the quarter & they missed revenue guidance by a fraction of a percent. Their forward P/E is around 10, meaning it is a quality name in the US trading at the sort of discount emerging markets trade at. And it is in a market where even generics are seeing huge price spikes.

I traded out of ABBV three times Friday & closed the day with a position up slightly, expecting it to go up Monday. If it gains a few percent right away I might sell it, but if it is a slow grind I am fine holding it for at least a few months. And once I get clarity on some other things I am working on it probably wouldn’t be a name I would mind holding longterm.

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