Johnson & Johnson: The Company Buffett Does Not Want To Keep

| About: Johnson & (JNJ)

When Warren Buffett speaks, people listen. And when Warren Buffett says you have problems, you have problems.

Johnson & Johnson (NYSE:JNJ) has problems. It's "obviously messed up in a lot of ways in the last few years," Buffett told CNBC this morning. Investors responded by knocking a few more dimes off its price.

To say J&J has problems, however, is a bit like saying that Jeremy Lin is popular right now. It's more than self-evident. And replacing Bill Weldon as CEO with Alan Gorsky does not solve the problem, especially with Weldon given a gold-plated parachute for a decade of failure.

Johnson & Johnson famously weathered a storm over its Tylenol pain reliever in the early 1980s, and Weldon seems to have taken the lesson as being anything can be handled with PR. So the company has suffered recall-after-recall in its over-the-counter drug lines. Its manufacturing process is horribly flawed, and the Philadelphia Inquirer notes it still needs to hire a manufacturing supervisor and a director of compliance.

Gorksy did a four-year stint at Novartis, running its North American operations, after spending 16 years at J&J, before winning a succession battle with Sherilyn McCoy. While at Novartis that company acquired the over-the-counter business of Bristol-Myers Squibb , which includes such brands as Excedrin and No-Doz. During the succession battle he managed the company's global supply chain.

This indicates he has experience in, and knowledge of, the problems of making big lots of popular drugs, which the company badly needs. Having run J&J's medical device unit he must also be familiar with the problems of integrating the company's Synthes acquisition. J&J acquired the Swiss company for $21.3 billion last year.

But Gorsky's hands are not clean from the stain of company recalls. While he was running the device unit the firm's DePuy Orthopedics had to recall artificial hips - costing the parent a $3 billion charge.

Media reviews of Gorsky's appointment are about the same as Billy Crystal's latest review as Oscar host, that is to say tepid. He's seen as an insider who won't rock a boat that badly needs rocking. This could make JNJ a profitable short in the near term.

But I have a hunch Gorsky, a former Army Ranger, may actually be able to deal with the firm's internal problems, and that it's best for him to do the inside work before bragging about anything to anyone.

For investors there will be plenty of time to pick up that bargain after its next plunge and when you do you'll get a fat dividend to go with it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.