Johnson & Johnson (JNJ) shares have declined recently and that is giving investors an opportunity to buy this blue chip stock at a level that could reward long-term investors. The company has a variety of healthcare and consumer products which include Listerine, Motrin, Band-aid, Reach, Splenda, Tylenol, Lubriderm, Sudafed, etc.
Some of the recent weakness in the stock is easy to attribute to the general market decline, which has been falling on concerns about the debt crisis in Europe, as well as the weaker-than-expected jobs report in the U.S. In addition, some of the weakness appears to be company-specific, since the company was recently fined about $1.1 billion by a judge in Arkansas due to risks with its antipsychotic drug Risperdal.
In addition to the cost of this fine, this decision could impact a number of pending lawsuits. Johnson & Johnson might be able to have the ruling partially overturned on the grounds that it is excessive and it might be able to settle many of the cases which remain pending. Furthermore, much of these costs will be paid and expensed over time, so the impact to financial results should not be too significant in the short or long term.
While the headlines on this story might have scared some investors away, it appears to be a
nice buying opportunity for those who have a long-term outlook. Here are three reasons to consider buying Johnson & Johnson shares on the recent dip:
1) Johnson & Johnson is a very large company with revenues of about $65 billion annually. It also has a strong balance sheet with about $32 billion in cash and $19.6 billion in debt. While the recent fines and ongoing lawsuits are not good news, the cost of these issues are manageable for a company of this size. The stock could be poised to rebound from the sell-off over this issue in the coming weeks.
2) Johnson & Johnson sells many products that are going to sell even if the economy weakens. Items like pain relievers, lotions, etc., provide this company with a stable revenue stream and that makes this a defensive stock. Johnson & Johnson shares have a current price to earnings ratio of about 12, but based on the stable revenues, quality of earnings and balance sheet strength, the stock should be trading at a higher multiple and that could lead to capital gains in the future.
3) Johnson & Johnson has a history of dividend increases. The dividend has jumped from $1.10 per share in 2005, to $2.28 per share in 2012. The current dividend provides a yield of about 3.6%, which is generous considering that the average stock in the S&P 500 yields about 2%. In addition, this company has room to raise the dividend even further in the future. This stock offers a strong dividend now, plus the potential for dividend growth.
Key points for JNJ:
Current share price: $63.54
The 52 week range is $59.08 to $68.05
Earnings estimates for 2012: $5.11
Earnings estimates for 2013: $5.45
Annual dividend: $2.28 per share which yields 3.6%
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: 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 advisor.