As an investor for the long term, it always warms the cockles of my heart to read all the negative articles about one of the greatest stocks on the planet, Johnson & Johnson (JNJ). To me that means there is more upside ahead.
I suppose the many articles written right here on Seeking Alpha took the baton from our old pal Warren Buffett. He actually sold about 2/3 of his stake in JNJ after grumbling that the company had disappointed him.
In a this recent article, it was noted:
"Berkshire pared its holdings of Johnson & Johnson (JNJ) by about two-thirds to 10.3 million shares. The world's biggest health-products maker was ordered in April to pay more than $1.1 billion in fines after an Arkansas jury found the firm misled doctors and patients about the risks of antipsychotic medication Risperdal. The company has also struggled with recalls of artificial hip implants and over-the-counter medicines.
"It's still got a lot of wonderful products and it's got a wonderful balance sheet and all of that, but there have been too many mistakes," Buffett told CNBC in a Feb. 27 interview."
Well, boo-hoo Mr. Buffett. But I think you're just flat out wrong here, and are overreacting to a few missteps that the company has faced.
OK, so they stopped all work on its recent Alzheimer's drug (read the report here), but so did Pfizer. And it seems to me that by discontinuing all of the work on this drug, more research and development funds can be put to other uses which will have a better shot at coming to the market. Plus, they are NOT giving up on this research completely:
"While we are disappointed in the results of the two bapineuzumab IV studies, particularly in light of the urgent need for new advancements in Alzheimer's disease, we believe that targeting and clearing beta amyloid remains a promising path to potential clinical benefits for people suffering from this disease," said Husseini K. Manji, global therapeutic head for neuroscience at Janssen Research and Development LLC.
Johnson & Johnson Stock Remains A Keeper
First, let's accept the fact that there have been some headwinds of late. Has anyone known any company that has never faced any headwinds? Not to mention that JNJ has been a dividend winning stock for decades.
How can investors become so fickle, seemingly overnight, when this stock has performed so well for so long?
Lets look at a few charts.
Since the S&P hit bottom back in 2009, JNJ's share price has gone from around $56/share up to about $68/share. A 20% increase, even with all of the missteps that Buffet pointed out.
The dividends have increased steadily during that same time frame, as they have for the past 50 consecutive years.
An increase of 20% roughly, in dividends paid, is not that bad either. When was the last time you had a 20% "raise" in any 3 year period?
A company that increases dividends every year, has a pretty stable share price that has risen nicely, and has also increased shareholder equity significantly is a stock I want to own in my portfolio, probably forever.
So What Do The Analyst's Say?
Back on July 5th, I wrote this article which pointed out quite clearly what had happened just weeks before:
- 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.
Not one of these analysts has changed their opinions OR estimates. They could obviously make some changes in the future, but in the face of the "Buffett Effect," they have not.
I do realize that revenues and profits have gotten squeezed, and last quarter was not stellar, but so what? I am not going to change my long term opinion of a mega cap, blue chip, dividend winning stock because of a few issues or a few weak quarters.
Johnson & Johnson has stood the test of time. The company has worked through all sorts of issues and will continue to face them and overcome them.
The stock price is near a high, and profit taking was inevitable. If this stock dips a little more, I am going to be adding more shares to my core holdings. Right now the dividend yield is about 3.70%, and for a company that puts shareholders first, I am a proud owner, and holder, of JNJ shares.