JP Morgan Chase and Co. (JPM) manages ~ $200 bn in equity assets primarily through its asset management subsidiary J.P. Morgan Asset Management. I discussed JPMorgan's Top Buys in a previous article. In addition, for investors seeking yield it is also interesting to have a look at its top dividend holdings. The following is a list of JPMorgan's top holdings with good dividend yields, as reported in its latest 13F filing with SEC.
Shares Held as on 12/31/2011
Johnson & Johnson
Merck & Co. Inc.
Verizon Communications Inc.
General Electric Co.
From the above list, I recommend buying Johnson & Johnson, Pfizer and Merck. However, I will like to avoid General Electric and Verizon.
Johnson & Johnson engages in the research and development, manufacture and sale of various healthcare products worldwide. It operates in three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics.
J&J's recent earnings results and guidance for 2012 show signs of improving fundamentals across its businesses. On the pharmaceutical front, in 2011, J&J received key product approvals for several of its drugs including Incivo, Zytiga, Edurant and Xarelto. These launches are expected to drive solid growth and improve margins through 2012. There is also sequential improvement on McNeil's situation as J&J works through its Consent Decree with FDA. Looking at its MD&D business, volume trends seem to be improving as physician office visits are stabilizing.
Despite FX pressures and a tough environment, J&J has posted good top line growth in Q4 and is expected to continue to outperform its peers, driven by a robust pipeline of drugs in the near term. I recommend a buy.
Pfizer is a research-based, global biopharmaceutical company. Pfizer's stock price has seen a good 20% appreciation in last 6 months, and I expect it to continue its upward trend going forward. I am bullish on Pfizer because of management's commitment to enhancing shareholder value through dividend and buybacks, and the company's improving product pipeline. Pfizer increased its quarterly dividend by 10% to $0.22 from $0.20 in Q4, and authorized an additional $10 billion share repurchase program with $5 billion in repo expected for 2012.
Pfizer is likely to generate ~$20B in free cash flow in 2012, so even with the dividend of ~$6.5B and share buyback of $5B, there is still plenty of room for inorganic growth through M&A. In addition, Pfizer is entering an interesting new product launch cycle with four $1 bn-plus opportunities including Xalkori, Eliquis, tofacitinib, and Prevnar 13 adult, which could provide organic growth catalysts for the company.
Merck is a global healthcare company. Merck delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. It operates in four segments: Pharmaceutical, Animal Health, Consumer Care and Alliances. I also like Merck, given the defensive nature of its business and its low valuations. The stock has outperformed S&P 500 (SPY) in the last 6 months, gaining over 22%. I believe this out performance will continue going forward, as investors realize the significant discount the company is trading at versus other large cap pharma names.
Two stocks from the above list that I don't like are Verizon and General Electric. Verizon is seeing secular pressure from declining wireline business and pension dilution. Further, high valuation (15x Forward PE) limits any potential upside for Verizon in the near term. On the other hand, GE is likely to see headwinds from weak pricing, a difficult European environment and decelerating growth in emerging markets. Hence I recommend a sell on the stock.