Finding an equity that satisfies a broad set of investment objectives is generally no easy task. Seldom do such opportunities present themselves, even within the Dow-30 crowd. But when they do, it’s important to know how to identify them. Here, we will focus on Johnson & Johnson (JNJ – Free J&J Stock Report), a manufacturer of healthcare products, and use the latest Value Line report on this company to illustrate how effective a tool it can be when making an educated investment decision.
A heavyweight in the non-invasive medical supplies group, New Jersey-based J&J offers a bevy of consumer products, many of which are over-the-counter and widely recognized (such as baby care and oral and wound care, etc.), and medical devices and diagnostics. And although it doesn’t specifically belong to the drug industry, the company has a notable presence in that market; pharmaceuticals make up a major component of the business. This, along with other basic company-related information, can be found in the Business Blurb section of the page.
Aside from a brief business description, the Value Line report provides a wealth of other data that investors may find pertinent to their respective strategies. Consider, for example, the Graph. It shows that while J&J stock has not been immune to fluctuations, its price has been on a steady upward track for nearly a decade. Notwithstanding occasional ups and downs, the blue chip has demonstrated a great deal of stability until recently. This is confirmed by a number of indicators, which would tend to attract more-conservative types. Glancing over to the Ranks box, we see that J&J stock boasts our highest Safety rank of 1 (out of 5), suggesting it carries far less total risk in comparison to all other issues under review. The measure is derived from a combination of the company’s Financial Strength and the stock’s Price Stability (both in the Ratings box). Note that J&J scores an exceptional grade of A++ for the former, meaning that the company’s financial position is in excellent shape. Similarly, it scores a perfect 100 for the latter. A beta coefficient of .80, displayed in the Ranks box, further supports the case that the stock isn’t prone to sharp fluctuations, giving the investor greater peace of mind. Indeed, this implies that the equity tends to be less volatile relative to the broader market indices (where 1.00 is on par with the market). It also helps that the Dow member gets a top mark of 100 for Earnings Predictability (Ratings section), thereby minimizing the possibility of earnings surprises, a factor that can often prompt wide price swings. Altogether, the issue’s risk metrics are highly favorable.
The Timeliness rank of 1 (Highest) out of 5, in the Ranks box is certainly eye-catching for those with a short-term (or year-ahead) horizon. From that perspective, J&J shares are quite a compelling choice for price performance relative to the broader markets.
Investors with a longer-term orientation might also like what J&J stock has to offer. Although J&J’s operations are fairly mature and the top and bottom lines are not likely to advance at a particularly vigorous or breakneck pace, the healthcare products conglomerate seems to have plenty of life left. That’s implied by analyst James Flood’s latest 3- to 5-year growth projections (shown in the Annual Rates section). The pharmaceutical division, in particular, which constitutes more than 45% of total sales, will probably play a key role in driving the company’s growth in the years approaching, while helping to offset sluggishness elsewhere in the business, mostly within the medical devices and diagnostics category. Indeed, J&J has a significant drug portfolio that includes a number of blockbuster medications such as Xarelto (a blood thinner), and anti-inflammatory therapies Simponi and Stelara. Imbruvica is proving to be a boon, too, as the solid sales increase of the cancer treatment suggests. The company is looking to expand the label on the drug, which is undergoing several late-stage studies. J&J’s pipeline of drugs in development holds special promise, as well, with nearly 30 compounds in Phase III programs; a slew of new drugs awaiting the FDA’s blessing have the potential to each generate about $1 billion in sales by late decade, as the analyst points out in the Commentary.
While the 3- to 5-year capital gains potential (Projections box) may not be overly substantial compared to the average stock in our universe, the issue still likely has some room to run, based on the company’s earnings growth prospects. What’s more, J&J stock features a fairly solid dividend yield at 2.8%, (see Top Label), which means investors can pocket decent income if the equity is purchased at the price shown at the top of the page. And the payout is expected to increase out to decade’s end, too, as forecasted in the Annual Rates section. When including prospective dividend hikes with projected price gains out to 2019-2021, total return potential is actually quite worthwhile on a risk-adjusted basis. Investors should be aware that JNJ’s share price has retreated in the weeks following the U.S. elections amid uncertainty in the healthcare sector. But the price pullback could make the buying opportunity here even more attractive.