Why I Would Buy One Of Donald Trump's Favorite Stocks And Sell The Other

Includes: FB, JNJ
by: Hawkinvest

In a recent interview on CNBC, Donald Trump stated he bought shares of Facebook (NASDAQ:FB). Mr. Trump has made billions investing in real estate and other investments, but he is not as well-known as a stock-picker, in fact he has even said "I'm not a stock person". In 2011, he said he bought shares in a number of blue chip stocks such as Johnson & Johnson (NYSE:JNJ), Bank of America (NYSE:BAC), Intel (NASDAQ:INTC), Caterpillar (NYSE:CAT), and others. Those picks have recently had mixed results, mostly since Intel and Caterpillar been in a downtrend. Although Bank of America and Johnson & Johnson have been rising. Here is a closer look at two of his stock picks:

Facebook shares were highly anticipated and expected to outperform before and during the initial public offering. After a big decline many investors (apparently even Mr. Trump) were tempted to try buying after the big drop. It appears that Mr. Trump bought with near perfect timing around the 52-week lows. Some of the major recent challenges for Facebook shares have included valuation, difficulty in monetizing mobile users, tax-loss selling, and additional insider selling potential due to IPO lockups expiring. However, investors have started to take a more positive view in the past couple of weeks and the stock has been outperforming. Facebook shares were trading at about $19 in mid-November and have recently shot up to around $28. That is a huge rise in a short time and some of the gain seems to be based on relief that a recent November IPO lockup date has come and gone without creating a wave of insider selling. Not everyone is bullish however, and it could make sense to take profits considering the roughly 50% gain in the share price in just about two weeks.

It's important to remember that while Facebook seems to have no problem with growing its user base, turning that into profits has been tougher than some have expected. A Barron's article makes a case for the stock to drop to $15, and it sums up the challenges this company faces as more users access the site through mobile devices. It remains to be seen how this plays out long-term, but with what appears to be very solid gains for Mr. Trump and other investors, it might be a great time to take some profits as the price to earnings ratio and other valuation metrics remain high.

Here are some key points for FB:
Current share price: $28
The 52 week range is $17.55 to $45
Earnings estimates for 2012: 52 cents per share
Earnings estimates for 2013: 65 cents per share
Annual dividend: none

Johnson & Johnson shares are a great pick for investors seeking yield, stability and relative safety. While this stock is not likely to make a big move up or down, that is exactly what some investors want; smooth and steady growth plus dividends. Since Johnson & Johnson is a leading medical device, drug, and healthcare company, it is a relatively defensive stock to own. It has been in business since 1866, and offers a range of well-known products such as Listerine, Motrin, Band-aid, Reach, Splenda, Tylenol, Lubriderm, Sudafed, and others.

Even if the global economy gets worse, the products this company makes are likely to remain strong sellers since consumers will cut back in other areas first. Medical devices and healthcare products also tend to do well in times of inflation. That means rising prices and weakening purchasing power of the dollar might not be a bad thing for this company and its shareholders. This company has a very strong balance sheet with about $19.8 billion in cash and around $16.85 billion in debt, and this adds to its defensive nature. This company has a strong history of paying dividends and it has raised the payout for 49 consecutive years. The dividend has more than doubled in the past 7 years. For example, in 2005, the annual dividend was $1.10 per share, but the payout has risen to $2.44 annually. It's easy to see why Mr. Trump likes this stock, and investors should consider buying it, especially on pullbacks.

Here are some key points for JNJ:
Current share price: $69.73
The 52 week range is $61.71 to $72.74
Earnings estimates for 2012: $5.09
Earnings estimates for 2013: $5.49
Annual dividend: $2.44 per share which yields 3.5%

Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.