Shortly after the opening bell, we will be buying 140 shares of Abbott Laboratories at roughly $112. Following the trade, Jim Cramer’s Charitable Trust will own 700 shares of ABT, increasing our weighting in the portfolio to 2.42% from 1.95%. We are buying more Abbott Laboratories into its recent weakness as we continue to believe the market is overestimating the risk of infant formula litigation. Abbott shares began its slide Friday after a jury ordered Reckitt Benckiser to pay $60 million to a plaintiff whose premature baby died of necrotizing enterocolitis, also known as NEC, after being fed Reckitt’s Enfamil formula. Abbott was not involved in this case. Whenever headlines like this break, the market tends to shoot first and ask questions later. In this example, the market looked at Abbott’s roughly 1,000 pending lawsuits and multiplied it by the $60 million payout to one plaintiff — who was seeking a smaller figure of $25 million — and calculated that Abbott’s worst-case scenario exposure could be as much as $60 billion. Here is Abbott’s official statement: “Abbott has spent decades researching, developing, testing and producing formulas and fortifiers for premature infants, and countless infants have benefitted tremendously from these products. These allegations are without merit, advancing a theory promoted by plaintiffs lawyers rather than the medical community, which considers these products part of the standard of care for premature infants.” There are a few key things to know from this statement. First, there is no scientific data that shows Abbott’s formula causes NEC even though the pending lawsuits allege these premature infants developed NEC as a result of the baby formula. Second, premature infants don’t have many feeding options for nutrition beyond Abbott’s and Reckitt’s products. It’s the standard of care because there is a lack of alternatives. This is a completely different situation from Johnson & Johnson ‘s talc litigation. Since the…
Read the full article here
