Is Johnson and Johnson a Safe Investment?

With shares of Johnson & Johnson (NYSE:JNJ) trading at around $82.07, is JNJ an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Those who have read this column on a steady basis know that Johnson & Johnson was given an OUTPERFORM rating in late December. This rating was based on simple logic, but is the picture still as bright for Johnson & Johnson?

Investors aren’t likely to see big gains in Johnson & Johnson. Actually, the year-to-date performance is out of the ordinary as well as a surprise to even the biggest Johnson & Johnson bulls. Over the long haul, this is a stock that offers steady gains and generous dividends. Experienced and savvy investors understand that it’s better to remain in these types of stocks than it is to gamble with high-growth stocks that can make your year in one month and then break your heart in one day. Johnson & Johnson might nag you a little from time to time, but it’s never going to break your heart. If stocks could be rated as loyal and trustworthy, then Johnson & Johnson would be at the top of that list.

Johnson & Johnson operates in three segments: Consumer, Pharmaceuticals, and Medical Devices & Diagnostics. It has been in business since 1886. It has survived recessions, depressions, wars, regulatory changes, and periods of industry weakness. It always battles through headwinds.

Currently, Johnson & Johnson has several revenue streams, a deep pipeline, excellent cash flow, and its yielding 3.0 percent. The stock also held up extremely well during the financial crisis of 2008/2009, and it has outperformed Pfizer Inc. (NYSE:PFE) and Bristol-Myers Squibb Company (NYSE:BMY) all-time.

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The chart below compares fundamentals for Johnson & Johnson, Pfizer, and Bristol-Myers Squibb. Johnson & Johnson has a market cap of $229.41 billion, Pfizer has a market cap of $208.05 billion, and Bristol-Myers Squibb has a market cap of $67.07 billion.

JNJ

PFE

BMY

Trailing   P/E

21.26

14.91

35.31

Forward   P/E

14.25

12.26

18.88

Profit   Margin

16.15%

24.70%

11.12%

ROE

17.25%

11.59%

16.95%

Operating   Cash Flow

$15.40 Billion

$17.05 Billion

$6.94 Billion

Dividend   Yield

3.00%

3.30%

3.40%

Short   Position

3.60%

1.00%

2.40%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong    

The debt-to-equity ratio for Johnson & Johnson is stronger than the industry average of 0.40. It’s also stronger than the debt-to-equity ratios for Pfizer and Bristol-Myers Squibb.

Debt-To-Equity

Cash

Long-Term Debt

JNJ

0.25

$21.09 Billion

$16.16 Billion

PFE

0.46

$32.71 Billion

$37.49 Billion

BMY

0.54

$2.83 Billion

$7.39 Billion

 

T = Technicals on the Stock Chart Are Strong  

Johnson & Johnson has been a steady performer over the past three years.

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1 Month

Year-To-Date

1 Year

3 Year

JNJ

7.01%

18.03%

29.09%

38.90%

PFE

5.95%

16.72%

33.56%

91.58%

BMY

10.55%

27.39%

24.99%

72.01%

 

At $82.07, Johnson & Johnson is trading above all its averages.

50-Day   SMA

76.85

100-Day   SMA

73.64

200-Day   SMA

71.06

 

E = Earnings Have Been Inconsistent                 

Revenue has improved over the past two years, but earnings have been inconsistent. That said, Johnson & Johnson always delivers big profits. As long as that’s the case, there is no need to worry about small to mild fluctuations.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

63.75

61.90

61.59

65.03

67.22

Diluted   EPS ($)

4.57

4.40

4.78

3.49

3.86

 

When we look at the last quarter on a year-over-year basis, we see significant improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

16.26

16.14

16.48

17.05

17.56

Diluted   EPS ($)

0.09

1.41

0.50

1.05

0.90

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Industry changes aren’t likely to affect Johnson & Johnson in a major way. This is a well-diversified company. Stronger performing areas will likely compensate for weaker performing areas. Once again, Johnson & Johnson has a strong history of fighting through headwinds. A lot of this has to do with prior preparation.

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Conclusion

Johnson & Johnson has steadily climbed higher for decades. Don’t pay too much attention to day-to-day news. Investors should consider trusting management and the company’s ability to deliver exceptional returns for decades regardless of exterior circumstances.

Johnson & Johnson is an OUTPERFORM.

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