An American Depositary Receipt (ADR) is an investment unit for foreign companies that trade on U.S. stock markets. One ADR typically represents one or more shares of the overseas firm.
ADRs make it easier to invest in foreign companies, such as the one we analyze below—one of six ADRs we cover in Wall Street Stock Forecaster—without the complications of buying or selling on foreign exchanges or in foreign currencies.
ABB LTD. (ADRs) (New York symbol ABB; www.abb.com) is a leading maker of power technologies for utilities, including transformers, transmission systems and circuit breakers. The Switzerland-based company also makes automation systems and robotics that industrial clients use to make their facilities more productive.
ABB is taking advantage of the slow economy to make acquisitions. In May 2012, it paid $3.7 billion for Thomas & Betts Corp., which makes a number of industrial products, including heating and air conditioning equipment, electrical connectors and transmission towers for power companies. Combining some of its functions with those of Thomas & Betts could save ABB $200 million a year by 2016.
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High U.S. dollar impacts overseas operations and cuts back revenues
These new operations pushed up ABB’s revenue by 3.5% in 2012, to $39.3 billion from $38.0 billion in 2011. Without the negative impact of the high U.S. dollar, which hurts the contribution of its overseas operations, revenue would have risen 7% in 2012.
Earnings fell 14.6%, to $2.7 billion, or $1.18 per ADR (each ADR represents one ABB common share). In 2011, it earned $3.2 billion, or $1.38 per ADR. The decline was largely due to the extra costs to integrate Thomas & Betts. ABB also hired more salespeople.
The company should earn $1.51 per ADR in 2013. The stock trades at 15.2 times that forecast. The $0.74 dividend yields 3.2%.
In the latest edition of Wall Street Stock Forecaster, we look at whether ABB can continue to profit from a rise in power demand in developing countries and from more of its manufacturing clients automating their facilities during a sluggish economy. We conclude with our clear buy-hold-sell advice on the stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
Do you believe stocks involved in power generation are chiefly conservative investments primarily of interest for their dividends? Or do you believe that as more developing economies emerge, stocks in this field will have a surge in growth? Let us know what you think.
Comments
Mahmoud
I would like to add that ABB is not pure Swiss company. Its original name was Brown Boveri & Co. It merged with ASEA which was a Swedish company
Allmänna Svenska Elektriska Aktiebolaget (English translation: General Swedish Electric Company; Swedish abbreviation: ASEA) was a Swedish company manufacturing electrical power equipment as BBC. It merged with the Swiss Brown, Boveri & Cie (BBC) in 1988 to form Asea Brown Boveri .(ABB) ASEA still exists, but only as a holding company owning 50% of the ABB Group.
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I would like to add that ABB is not pure Swiss company. Its original name was Brown Boveri & Co. It merged with ASEA which was a Swedish company
Allmänna Svenska Elektriska Aktiebolaget (English translation: General Swedish Electric Company; Swedish abbreviation: ASEA) was a Swedish company manufacturing electrical power equipment as BBC. It merged with the Swiss Brown, Boveri & Cie (BBC) in 1988 to form Asea Brown Boveri .(ABB) ASEA still exists, but only as a holding company owning 50% of the ABB Group.