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Shares of Johnson & Johnson (NYSE:JNJ) quietly reached a new 52-week high Friday. This caught our attention, since it at once seemed out of the ordinary, but somewhat comforting, as the recent economic weakness has likely pushed portfolio managers to add to defensive stocks like JNJ, whose vast panorama of business lines likely strips away most of the idiosyncratic risk they would have to take on (assuming no proper hedging) if they invested in a smaller company that was not as diversified and reputable as JNJ.

Nevertheless, we ran some numbers, and ignoring, for the time being, Johnson and Johnson’s fundamentals, we noticed that over the last 3 months, JNJ and the Dow Jones have gone in diametrically different directions. The Dow is down 8% over the last 90 days, whilst JNJ, which is one of the Dow 30 components, is up 8%

click to enlarge

We would be amiss in recommending a short on JNJ here, but we find it noteworthy enough to point out and if you are a portfolio manager with a position in JNJ, it may not hurt to trim profits and/or review your holdings with your analyst team. We found that over the last 5 years, JNJ’s monthly returns have been most likely in the -2 to 0% range.

As one can see from the frequency diagram, there have been plenty of instances in which JNJ has had monthly returns in excess of 2% and 4%. That may very well continue and we may be completely wrong in throwing rain on JNJs parade. However, we would argue that over the last 5 years, JNJ was facing a much more benign environment that it currently faces. Today, JNJ’s current patent loss headwinds (high margin drugs Risperdal and Topomax) and a challenging stent landscape have heightened JNJ risk profile, we would argue. Furthermore, JNJ’s Q2 top line growth was driven mostly by (64% of the 8.7% growth, to be exact) favorable foreign exchange rates and Wall Street simply may have gotten ahead of itself in bidding up shares.

JNJ clearly isn’t going to disappear anytime soon. On the contrary, JNJ’s mountain of free cash flow makes us longtime fans of the stock – it’s just that given the statistical backdrop outlined above, we expect some profit taking soon and can likely get JNJ at a better price. If you remember nothing else: great companies don’t always translate to great stocks.

Disclosure: None

Source: Johnson & Johnson Profit-Taking Likely, Offering Better Entry Point