I almost gagged when I read an article here on Seeking Alpha that offered the opinion that Johnson & Johnson (JNJ) stock should be sold. The author also said to avoid AT&T (T) in the same article. Since I wrote my reasons NOT to avoid AT&T in this article, I felt compelled to write one about an all-time favorite stock for many millions of individual investors, as well as mutual funds and institutions.
Advising people to sell JNJ is just flat out incorrect in my opinion, especially for dividend-seeking investors and retired folks. Johnson & Johnson has been a dividend champion for as long as I have been alive, and will more than likely be one for decades to come. Sell this stock? Not a chance. Actually I am thinking of adding a bunch more on any pullback.
The Party Is Just Starting
How about a few upgrades?
- Johnson & Johnson was upgraded by analysts at JPMorgan Chase from a "neutral" rating to an "overweight" rating. They now have a $74.00 price target on the stock.
- Johnson & Johnson was upgraded by analysts at Raymond James from a "market perform" rating to an "outperform" rating. They now have a $72.00 price target on the stock.
- Johnson & Johnson was upgraded by analysts at Jefferies Group from a "hold" rating to a "buy" rating. They now have a $72.00 price target on the stock.
These happened just 2-3 weeks ago and they are not by fly-by-night analysts.
How about some dividend magic?
A recent Forbes article announced that "Dividend Channel" placed JNJ in it's S.A.F.E. category of the top 25 dividend paying stocks in the world.
"JNJ made the "Dividend Channel S.A.F.E. 25″ list because of these qualities: S. Solid return - hefty yield and strong DividendRank characteristics; A. Accelerating amount - consistent dividend increases over time; F. Flawless history - never a missed or lowered dividend; E. Enduring - at least two decades of dividend payments."
That is quite an achievement and there are only 24 other stocks in it's class. That is a class I want to attend, not to sell, folks.
Trefis, in this article, also identified JNJ as a dividend stock to own as well:
"Johnson & Johnson has a market capitalization of $186.75 billion. The company employs 117,900 people, generates revenue of $65,030.00 million and has a net income of $9,672.00 million. The firm's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $15,993.00 million. The EBITDA margin is 24.59 percent (operating margin 19.01 percent and net profit margin 14.87 percent)."
Financial Analysis: The total debt represents 17.27 percent of the company's assets and the total debt in relation to the equity amounts to 34.39 percent. Due to the financial situation, a return on equity of 17.02 percent was realized. Twelve trailing months earnings per share reached a value of $3.64. Last fiscal year, the company paid $2.25 in form of dividends to shareholders. Five gurus bought JNJ.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 18.69, P/S ratio 2.85 and P/B ratio 3.22. Dividend Yield: 3.61 percent. The beta ratio is 0.55."
Low beta, great yield, huge company, incredible balance sheet, and a price that actually is just now getting back to where it was a year ago;
Call me a glutton for punishment, but to me, I want to "suffer" by owning this "clunker". Okay, I am being facetious a little. Maybe a lot, but how could anyone urge people to sell this gem?
One more little dividend tid bit; Check out this article that lists all the stocks that have increased dividends for at least 25 years in a row. Notice that Johnson & Johnson has increased dividends for 49 years in a row. There are not that many better than that.
Nothing Is Ever Perfect
I suppose that it would not be a ballgame if everything was just peachy keen with any stock, and JNJ is no different. The company has faced a myriad of issues that will tend to give pause to investors, and should give pause. To me, it's that "wall of worry" that will also drive the share price up.
Just the other day JNJ recalled "K-Y Liquibeads"
There seems to always be some sort of recall happening with JNJ, this one is just the latest. Hey no chuckles out there, this is still an issue!
"The New Brunswick, N.J., company said it there are no safety or performance issues and consumers are not being asked to return any products.
But it has instructed retailers and wholesalers to return all production lots, a total of around 69,000 packages of the product, the company said.
The Food and Drug Administration warned Johnson & Johnson by letter in late May about its failure to investigate dozens of complaints from consumers about K-Y Liquibeads in recent years."
Still waiting for FDA approval on Xarelto
According to JNJ's website:
"Janssen R&D submitted this sNDA on December 29, 2011 and received a priority review designation from FDA on February 27, 2012. On May 23, 2012, the FDA's Cardiovascular and Renal Drugs Advisory Committee narrowly voted against recommending approval of XARELTO® in this indication."
This drug will be a biggie if and when it gets approved, but not quite yet.
The FDA is also looking at safety issues with JNJ's metal hip implants
In this article, it is noted that it could take up to a decade to review all the findings, but that does not leave JNJ off the hook, of course. "With little definitive data on U.S. hip implants, the agency has asked manufacturers like Johnson & Johnson, Zimmer Holdings Inc. and Biomet Inc. to conduct long-term, follow-up studies of more than 100 metal-on-metal hips on the U.S. market."
FDA scientists say the studies will help "fill in the blanks" on a number of scientific questions, including the effects of metal particles that often seep into the bloodstream as the implants wear down.
But Sedrakyan and others say it could be a decade or more before that information is available. In a commentary published last week in the New England Journal of Medicine, Sedrakyan and two co-authors pointed out those studies must run at least eight years to return the information FDA is seeking. Based on the authors' analysis of FDA records, the FDA has reached agreements on the design of less than 25 percent of the studies, and it's unclear whether any of the studies have actually begun. The FDA notified the companies last May.
These are not issues that should be ignored, but it was about 25 years ago that Tylenol was recalled and if the company was not JNJ, it would have been gone. Johnson & Johnson went through pain and came out the other side, and these issues are nothing compared to that fiasco. The company will get through these issues and more, and won't miss a beat in my view.
My Opinion
I always say I will never tell anyone to buy or sell any stock. I can only offer my opinion. I believe the facts speak for themselves, very clearly and quite loud. Johnson & Johnson could be getting the party started.
