Dan Jacome

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

Thank you for your comment -- we do not disagree that JNJ is a solid company with a cash flow spigot that could easily be used to reduce int exp, and thus free up more earnings power. However, we simply wanted to note -- or suggest, better -- that investors may be jumping aggressively into JNJ because of short term uncertainties with the market as a whole. This will likely continue (PMs pushing their analysts to focus on more stable cash flow companies, more recession proof names), but in the long term, which the Street's risk appetite improves, JNJ will see a pullback. Whether that is next quarter (unlikely) or in 2009 (likelier), no one knows.

Put in a larger perspective: JNJ has outperformed the Dow over the last 30 years. It has approximately moved in tandem with the DJIA over the last 5Y. Over the last 2Y, it has underperformed the Dow. In the last 3 quarters roughly, JNJ has outperformed the Dow by a wide extent (we use 07 as a marker of "credit crisis begins")...

All we wanted to "throw out there" is that those holding onto JNJ may want to look at their holdings a tad closer and determine if JNJ's run up is fully warranted by its fundamentals. Clearly, our work is the first tiny step (a sprinkle of evidence) in a much larger JNJ project, which may or may not ultimately corroborate what we we found.