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Johnson & Johnson: The Iconic Health Care Brand Is Attractive

Mar. 07, 2018 2:44 AM ETJohnson & Johnson (JNJ)17 Comments
Hale Stewart profile picture
Hale Stewart
10.47K Followers

Summary

  • JNJ has made a number of key acquisitions over the last year.
  • Moving into health care is an appropriate move as we enter the last part of this expansion.
  • JNJ posted solid topline numbers last year.

Johnson & Johnson (NYSE:JNJ) is the largest major drug manufacturer, with a market cap of $355 billion. It is also expensive: out of 28 major drug companies, it has the 9th highest PE (23.91) and 5th highest forward PE (15.91). It also has the 9th highest dividend yield which is currently 2.61%. According to dividend.com, JNJ has raised its dividend 55 consecutive years.

I recently noted that because we're closer to the end of this expansion than the beginning, we should start to take a more defensive posture regarding new acquisitions (please see "Thoughts on Asset Allocation For March 2018" and "The Health Care Sector is Gaining Traction"). JNJ falls into this category for several reasons.

  1. It's one of the largest most iconic brands in the world. Right now, size = a higher degree of safety and lower volatility (the stock has a beta of .75)
  2. They have a diverse revenue stream. The company has three divisions:
    1. Consumer goods, which accounts for 13% of their revenue
    2. Pharmaceutical goods (which is further divided into six segments), which accounts for 58% of their revenue
    3. Medical Devices, which accounts for 28% of their revenue (they have a very diverse group of product).
  3. They have a global presence: They derive 52% of their sales from the US, 22% from the EU, 8% from Western Hemisphere non-US, and 17% from Asia/Africa.
  4. The company is currently restructuring their devices division, which will cost approximately $2-$2.4 billion now but will increase their bottom line.
  5. The company has made a number of key acquisitions, which they outline in their latest 10K [emphasis added]:

Actelion Ltd., an established leading franchise of differentiated, innovative products for pulmonary arterial hypertension;

Abbott Medical Optics (AMO), a wholly-owned subsidiary of Abbott Laboratories, which include ophthalmic products related to cataract surgery, laser refractive surgery and

This article was written by

Hale Stewart profile picture
10.47K Followers
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Analyst’s Disclosure: I am/we are long JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (17)

C
CFC2
09 Mar. 2018
There's a note about the return on Treasury notes. If I look at the return on my original JNJ position over time without factoring in dividends I earned a little less than 3.5%. If I kept the dividends as cash and don't count them in my rate of return. If I add the dividends into my rate of return I am at 5%. Automatically reinvesting the dividends gives me a total today of more than 5 times my original investment or a little less that 7% per annum.

While you could always spend additional funds to increase you position in 10 year T bills I don't think those T bills are going to hand you the money to increase your position.

I think JNJ beats 10 year T-bills.
Shaine profile picture
great article, great comments. Thanks!
foxgary profile picture
Appreciate these heads ups about great companies. 2 ūüĎć.
LookingAtStocks profile picture
Good article...picked up more JNJ shares this morning...nice dividend too :o)
richjoy403 profile picture
Long JNJ in my Core Portfolio, very little monitoring required.
j
"it has the 9th highest PE (23.91) and 5th highest forward PE (15.91)"

2018 est eps $8.55, I get p/e of 15.9 as you do, high? yield 2.6% with an increase to come soon, I would get in or may add more here.
stan11 profile picture
Hale- Excellent write-up on JNJ. Good explanations of income and balance sheet and the effect of goodwill. I like JNJ and have been patiently waiting to add shares to my portfolio and will be doing so this morning.
C
CFC2
07 Mar. 2018
If you're a short term speculator you try to sell high and buy back in on the dips. If your in it for long term growth and the dividends this is one to own and just let the checks come in quarterly.
Prodigy Disc Golf profile picture
I buy weekly. Don’t worry about the price all that much because I never plan to sell.
p
I have found that this is very truly a stock to buy and hold forever sans worries. And no problems to buy the significant dips. Thanks for the confirming article.
TJ Burke profile picture
Yep - Over 30 years in, never considered selling
E
Agree. Bought in at $144 after the earnings pullback as I did not consider that pullback justified. Now it is down below $130...what a deal for this caliber company! Healthcare is going to grow quite a bit over the next couple of decades and JNJ is very well diversified across many healthcare industries and markets. I'm a young investor planning to hold this for many years, not worried about my current unrealized loss
mulligangs profile picture
You all realize that JNJ pays less than a risk free 10-yr T bill right? No point to hold anything forever at that rate. Now if you add capital appreciation and sell at a profit, then that makes sense.
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