Week 6: AbbVie is just too cheap to pass up

AbbVie Week 6

Newly-acquired debt won’t scare me away

I honestly didn’t plan on adding another position to the portfolio this week, but, well, I couldn’t help but nibble on AbbVie (ABBV) a little.

This week’s purchase: AbbVie

By a little, I mean five shares. I scooped ’em up at an average cost of $67.65 this past week, adding $21.40 in forward annual dividend income in the process. The stock was trading around $100 a year ago. A handful of things have driven it considerably lower since, most recently its planned $63 billion deal for Allergan, but a good earnings report the other day helped ease the pain a bit.

AbbVie Week 6

Personally, I don’t see what all the concern is about. There’s a lot to like about the Allergan acquisition. Sure, AbbVie is adding a ton of debt to the balance sheet, but sometimes you have to spend some money to make money, right? Think of the deal in terms of real estate. Let’s say Humira – the world’s best-selling medicine and AbbVie’s main source of income – is Abbvie’s first rental property. It’s been a great money maker for the company for a long time, but now, thanks in large part to growing competition from cheap rivals in Europe, it’s not the cash cow it once was. OK, so what do you do? AbbVie simply added to its empire. It bought another rental, Botox-maker Allergan, to add another income stream and diversify things a bit. Now AbbVie has two key sources of income. Yeah, it added some debt in the process, but it’ll be paid off at some point and that income stream, well, it’ll (hopefully) keep producing cash for years to come.

Maybe that’s an oversimplification, but I hope you see my point. AbbVie is poised to expand its pharma empire and I’m banking on just that. It will probably take some time for things to settle down, but I’m happy collecting the $4.28/share annual dividend until it does.

The dividend is already one of the best you’ll find. It sports a 6.32% yield as it is, and AbbVie’s increased it each of the last five years at an average rate of 20.74%. That may slow down a bit until the newly-acquired debt goes bye bye, but, like I said, it’s already great. Couple that with tons of potential upside – Morningstar has the stock with a fair value price of $102 – and you have a recipe for success. I mean, you never know what you’re going to get in the stock market, but I like Abbvie’s odds of coming out of this thing in pretty good shape.

What do you think? Anybody out there buying AbbVie at these levels?

Recent steps

Prior to this past week’s purchase, I added Eastman Chemical (EMN) to the portfolio in Week 5, bought some General Motors (GM) in Week 4 and added some AT&T in Week 3.

March with me

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