Johnson & Johnson (JNJ) is a sound defensive investment for any conservative investors interested in the long term. Johnson & Johnson has steadily increased its stock price and earnings despite massive recalls and litigation issues. Johnson & Johnson continues to be able to raise dividends and maintain adequate numbers in comparison with the industry despite the drawbacks over the past few years. The majority of its troubles have passed and a revamped business model with new leadership at CEO will enable Johnson & Johnson to recapture its leadership position among competitors in the industry. International growth along with effective acquisitions and improvements in the pharmaceutical center are valid reasons to invest with Johnson & Johnson now before the stock price begins to rise toward the end of 2012.
Investors should be reassured that Johnson & Johnson has shown the stability it has through recalls and poor acquisitions that would cripple most organizations. Its reputation has taken some flak, but there is far too much goodwill attached to the Johnson & Johnson name for it to feel any long-term affects. As more pharmaceuticals are approved by the FDA, the largest acquisition in corporate history goes through unscathed and the consumer products re-enter the market, the stock price will begin to rise quickly for the remainder of the year. The recalls on consumer products is the smallest source of income for this corporate tycoon. Johnson & Johnson is looking beyond these over-the counter products in regards to improving its revenue and value on the market.
Johnson & Johnson shows stability with the 52-week range for the stock price between $59 and $68 with a beta of less than .5. The current price of $63 is right around the 50-day and 200-day moving averages at $64. Net profit margin, operating margin and return on equity have decreased since last quarter but they are only slightly less than adequate and on par with competitors in the industry considering Johnson & Johnson's mitigating factors. The price-to-earnings ratio is on par with the industry and is projected to improve throughout the course of the year. Institutional ownership and gross margin both exceed 65% as positive signs that investors should still believe in this powerful brand.
Some analysts and conventional thought suggests that Johnson & Johnson is too big to grow successful as Pfizer (PFE) has improved its business model by becoming leaner and more streamlined. Its size and diverse portfolio are exactly what has enabled Johnson & Johnson to withstand its recent drawbacks in acquisition and consumer market recalls and litigation. Separating the CEO and chairman position and appointing a new CEO with medical device experience are positive decisions that will improve Johnson & Johnson value in the near future.
The acquisition of Dupay has led to a number of recent problems for Johnson & Johnson. It began with the recall of hip replacement units. Johnson & Johnson's reputation took a hit when it failed to be forthright with the litigation costs related to this recall. The combination of the recall and litigation costs has been hampering earnings and public perception of Johnson & Johnson recently. The new CEO plans to offset this with its largest acquisition to date. Acquiring Synthes, a Swiss orthopedics maker for $21 billion, will further expand Johnson & Johnson's book of business and global presence in the orthopedic, trauma and extremities markets. The growing population of elderly consumers and people in need within emerging markets makes this a very promising acquisition for the future.
The recall of Motrin, Tylenol, Pepcid and Neutrogena products have resulted in over 280 million items recalled within the past few years. Johnson & Johnson is also facing heavy litigation from downplaying the risks of an antipsychotic drug that has so far cost it $1.2 billion in Arkansas, alone, aside from Texas, and South Carolina, that have pending cases as well. These are one-time occurrences that have hampered earnings and the stock price but will eventually pass with time. The consumer products will hit the market soon again and the acquisition of Syntheses will help mitigate the losses as well in due time. Johnson & Johnson is also focusing on improving its pharmaceutical portfolio in order to offset these latest debacles.
Last year Johnson & Johnson increased funding toward R&D by 10% by using 11% of revenue equating to $7.5 billion in order to improve this segment of its business. It received three new drug approvals from the FDA, which was the most for any organization tied with GlaxoSmithKline (GSK). Johnson & Johnson was approved to market Xarelto, a drug for stroke ailments in a market of over 2 million patients. Last year, Johnson & Johnson put out 11 drugs that are awaiting approval by the year 2015. It is focused on releasing products to help with Alzheimer's as well as cancer. It is working toward innovating the industry and welcoming local start ups and fledgling developers to help stimulate its R&D efforts.
In 2011, international sales accounted for over 55% of the total revenue for Johnson & Johnson. Consumer products were around 23% of 2011 revenue while pharmaceuticals and medical devices accounted for 37% and 40%, respectively. At the beginning of the second quarter of 2012, Johnson & Johnson had 17 pharmaceutical products in the late stages of development under review by the FDA as well. It is also increasing its market share in China by acting on its first medical device acquisition after being there for the past 20 years. The newly acquired Guangzhou Bioseal Biotech specialized in devices that control bleeding during surgery. While domestic pharmaceutical sales have decreased by 10%, international operational sales have increased by over 19% from the year before.
Focusing on medical devices and pharmaceuticals is the catalyst that will lead to growth for Johnson & Johnson. Improving its presence internationally and expanding will also be essential to increasing its value in multiple industries and markets. Johnson & Johnson has the most upside of competitors like Merck (MRK), Abbott Labs (ABT), and Pfizer. Despite all the problems that are one-time occurrences for Johnson & Johnson, it has shown remarkable stability while steadily increasing earnings in its operations growth sectors. Once Johnson & Johnson's new consumer products begin to hit the market again, I predict the stock will jump back up toward its 52-week high of $68.05. I think this will happen in the next one to two months, so I recommending buying this stock now if you are considering it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.