These are troubled markets by any definition. For value investors or even momentum traders, finding stocks whose price appreciation appears likely has now taken a backseat to the old adage of simply not catching a falling knife. Right now the only sectors that appear to be withstanding the carnage, if you wish to go long in big name, large cap, S&P or Dow stocks, are energy and health care. You can add the rails portion of the transports, consumer products, as at least having some theoretical floor to their stock prices, along with perhaps fragments of other industries or a few individual stocks within industries. But for the most part, every sector has been slammed so hard that the immediate prospects for an early upside this year in the major averages look dim.
So what to do, or what stocks to even look at or consider? Johnson & Johnson (NYSE: JNJ), one of the Dow 30, is a major health care company that also has a consumer products component. Its brands are common over-the-counter goods that are certainly recession resistant, if not recession proof. J & J, with its massive $174 billion market cap, earned $10.6 billion, or $3.63 per share last year, on $61 billion in revenue, and has traded in a lazy price range of 59.72-68.85 in the last year, with a recent close at 62.44. Its current dividend yield is 2.7% and it trades at a current PE of 16.9. The company has $7.1 billion in long-term debt. Its quarterly report, due out in April, is projected to show a $1.19 EPS which is a 3% increase over last year’s equivalent quarter. The long-term median growth rate is pegged at approximately 9%.
J & J has three main segments, consumer, pharmaceutical, and medical device-diagnostic, which comprise its business. These are highly related, even synergistic businesses, which complement each other. Well known consumer brands include Band-Aid, Motrin, Tylenol, Splenda, and a slew of other baby and child care products, skin care products, as well as hygiene products. The pharmaceutical names include Procrit, which is the bio-derived blood cell growth stimulating product known also as EPO, which has vast uses for anemia patients, especially chemotherapy and kidney disease patients. Though this drug faces restrictions, J & J has several other profitable drugs. Antibiotics and contraceptives are other major products in the Johnson and Johnson lineup of medications. In the medical device area, Ortho-Clinical Diagnostic products, Endo-Surg, minimally invasive surgical products, along with Life Scan glucose monitoring products are all widely used products by medical professionals.
Despite the tough economy and markets that seem like they’re going to be with us for some time, Johnson & Johnson appears to be positioned to well resist the downdraft in the economy. Its businesses are filled with thriving products. Unlike R&D biotechs, which are basically developing products and are dependent on one or two research home runs, J & J has a wide array of products and is spread deep into the recession-resistant area of consumer spending.
For those who note such things, Warren Buffett’s Berkshire Hathaway owned 61.7 million shares of Johnson & Johnson as of recent reports, as well as 105 million shares of Procter & Gamble (NYSE: PG), another consumer products giant. Buffett’s Hathaway also held large stakes in Glaxo-Smith Kline (NYSE: GSK) and Sanofi-Aventis (NYSE: SNY), two other pharmaceutical giants. J & J has also been selected as the “Stock to Study” for the May issue of Better Investing Magazine.
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