Wednesday, January 18, 2012

Johnson & Johnson (JNJ) 2012 Review

Johnson & Johnson (JNJ) is a major developer, manufacturer and marketer of health care products. 

Its major divisions are: Consumer (baby care, oral care, non-prescription drugs, wound care and skin care), Medical Devices (electrophysiology, circulatory disease management and orthopedic joint reconstruction) and Pharmaceuticals (contraceptives, psychiatric, anti-infective, gastrointestinal and dermatological).

Over the past ten years, the company has earned a 20-30% return on equity while growing its earnings and dividend at a 12-14% annual rate. While profit and dividend growth may slow somewhat short term, its strong, well diversified product line should continue to grow rapidly longer term as a result of:

(1) acquisitions--the latest being [a] Cougar Biotechnology, a biotech company developing oncology products for treating prostate cancer, breast cancer and multiple myeloma, [b] an Elan division, which develops products for the treatment and prevention of neurodegenerative conditions including Alzheimers, [c] Crucell, which will strengthen its presence in the vaccine market, [d] Synthes which will enhance its medical device portfolio and [e] an agreement with Gilead to develop a once daily antiretroviral HIV pill,

(2) continued strong performance of Remicade, JNJ’s best selling drug for the treatment of rheumatoid arthritis, Crohn’s disease and ulcerative colitis,

(3) focus on commercializing its late stage pharmaceutical pipeline and invest in future growth areas (venous thromboembolism, deep vein thrombosis, atrial fibrillation,

(4) growing presence in the emerging markets.


(1) generic sales,

(2) FDA warnings on several drugs including Remicade,

(3) EU pricing pressures,

(4) A recent FDA consent decree that will impact earnings per share by roughly $.12,

(5) the risk of product recalls.

JNJ stock offers a 3.5% dividend yield, carries a 17% debt to equity ration and is rated A++ by Value Line.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
JNJ 3.5% 7% 45% 10
IND 1.2 8* 32 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
JNJ 17% 21% 0 21% A++
IND 21 18 NA 5 NA

*most companies in JNJ industry do not pay dividends


Note: JNJ stock rebounded quickly off its March 2009 low, quickly surpassing the down trend off its September 2008 high (red line); however, it took much longer to successfully challenge it November 2008 trading high (green line). Long term, JNJ is in a trading range (straight blue lines(. Intermediate term, it is in an up trend (purple lines). The wiggly blue line is on balance volume. The Dividend Growth Portfolio owns a 75% position in JNJ. Shares would be Added at $47. The lower boundary of its Sell Half Range is $85; although I am considering a trading sale of a portion of this holding due to its proximity to the upper boundary of its trading range.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.