Why It Is The Best Time To Invest In Johnson & Johnson

| About: Johnson & (JNJ)

Let me tell you why you should put your money in Johnson & Johnson (JNJ) today. Johnson & Johnson's stock has been rising in the last two months. Last Friday, July 13th, it exhibited 52-weeks high at $68.61, beating its previous record of $68.15 per share. This is the result of several factors that show Johnson & Johnson is off to new heights. Johnson & Johnson's successful acquisition of Synthes, Inc. is one huge future growth area for the company. There are new developments in its efforts to settle legal issues with its shareholders and the government. Moreover, the stock is doing pretty well compared to its competitors in the industry.

JNJ ChartClick to enlarge

JNJ data by YCharts

Profile of Johnson & Johnson

Based in New Jersey, Johnson & Johnson is a healthcare conglomerate manned by 117,900 employees. The company manufactures and sells a wide range of health care products. These include consumer products - baby care, oral care, wound care, and women's health. Johnson & Johnson is the maker of Tylenol, Listerine, Aveeno, Clean & Clear, RoC, Neutrogena, and Band-Aid, to name a few. Johnson & Johnson's diversified product line also includes nutritionals, medical devices, over-the-counter drugs, and prescription drugs. It is behind the prescription drugs Edurant, Xarelto, and Zytiga.

The company carries out research and development of new products to meet medical needs in various therapeutic areas like immunology, neuroscience and pain, cardiovascular and metabolism, infectious diseases and vaccines, and oncology. In 2011, Johnson & Johnson invested $5.1 billion on research and development. It has a solid and visible commitment to developing new products. Approximately a quarter of its products sold in 2011 were those introduced in the past five years.

The company's global exposure is increasing. In 2011, 55% of its sales came from outside the United States. Its stock has a market capitalization of $188 billion and currently trades at $68.6. It is a profitable company that has enjoyed consistent dividend increases for 50 consecutive years including the April 2012 increases. In fact, Johnson & Johnson has recently been listed to the Dividend Channel S.A.F.E. 25.

JNJ Dividend ChartClick to enlarge

JNJ Dividend data by YCharts

There are signs that the company has already recovered from the crisis. Worldwide sales grew by 5.6% in 2011, exceeding its pre-crisis growth rate of 4.3%. A company as large as Johnson & Johnson growing at over 5% in a post-crisis era is indeed promising.

Aside from these, an important characteristic of Johnson & Johnson is its stability. Across other sectors, the stock is fairly stable with a Beta of 0.55. Beta is a measure of how sensitive the company returns are to that of the market. The farther the Beta is from 1, the less sensitive the stock is.

So how does Johnson& Johnson fare against its competitors ?

I look at key financial ratios such as EPS and BVPS. Both are in favor of the stock. Earnings per share of Johnson & Johnson at 3.65 is above those of Pfizer (PFE) [1.23], Merck (MRK) [2.24], and Abbott (ABT) [3.24]. The book value per share of Johnson & Johnson also beats the competitors' ratios. Johnson & Johnson enjoys 22.35 per share while Merck and Abbott follow at 18.83 and 16.25, respectively. Pfizer, meanwhile, only has 11.11.

JNJ Earnings Per Share TTM ChartClick to enlarge

JNJ Earnings Per Share TTM data by YCharts

JNJ Book Value per Share ChartClick to enlarge

JNJ Book Value per Share data by YCharts

Johnson & Johnson is relatively more profitable than its competitors. It has a profit margin of 15.15% while Abbott has 13.01%. Merck and Pfizer are trailing behind Johnson & Johnson at 14.46% and 14.45%, respectively. Also, the stock is healthier than most of its competitors' stock. It is less overvalued than Pfizer and Merck, as it has a lower PEG ratio of 2.23. Pfizer's PEG ratio is 4.28 while that of Merck is 2.92. Even since my latest article containing Johnson & Johnson, the stock has increased by 1.2% in nearly ten days. Based on its numbers, Johnson & Johnson has an O-Metrix score of 2.68. (For more information on O-Metrix calculations, please click here.)

Recent developments at Johnson & Johnson

The company has successfully acquired the Swiss medical device maker Synthes Inc. I believe this is a key growth area for the company in the future. Johnson & Johnson acquired Synthes for $19.7 billion, the biggest acquisition ever made by the company so far.

Meanwhile, news of the company's efforts to resolve legal suits and manufacturing problems are potential booster of its marketability. Recently, investors have sued the company for allowing its top officials to become unaware about the company's problems. Johnson & Johnson's decentralized management structure is blamed for this. News that the company is entering into a settlement is a plus point. The settlement is said to produce changes to prevent the same problems from occurring in the future. These include setting up new standards and forming of independent oversight committee and procedures for reporting.

The company is settling its other problems, as well. It is reportedly close to settle with the Justice Department a case of alleged illegal marketing of prescription drugs.

Besides settlement, there are other things that make the company interesting. It is closely being watched as it pushes forward newer drugs in the market. These include canagliflozin and bedaquiline. Canagliflozin is a Type 2 diabetes drug while bedaquiline is a breakthrough treatment for tuberculosis. Johnson & Johnson awaits approval of FDA for these drugs.

Aside from that, the company is currently testing a potential breakthrough drug with Pfizer Inc. and Elan (ELN). This is bapineuzumab, a drug for delaying the deterioration of physical and mental function in Alzheimer's patients. Let's wait and see whether these companies can successfully develop this drug or not.

So why must you include Johnson & Johnson in your investment portfolio ?

In my opinion, this stock has remained the company to beat in the industry in many decades. It has stood the test of time and remained strong despite numerous problems. I summarize its attractiveness as an investment in a few words. These are profitability, stability, and future growth prospects.

Any investor would look at the profitability of the company. The stock is profitable as shown by its track record in giving out dividends. Its profit margin is highest among its peers. Also, I would recommend looking at stability especially in these times of uncertainty. Johnson & Johnson has been tried and tested for its stability and lower volatility. Lastly, Johnson & Johnson's future growth prospects are high. It owes this mainly to the diversification of its products from its acquisition of the Synthes Inc. Its ability to increase its sales abroad is also a plus factor.

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