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There's no question that Johnson & Johnson (NYSE: JNJ), whose corporate colleagues include Merck (NYSE: MRK), Pfizer (NYSE: PFE), and Procter & Gamble (NYSE: PG), is a respected institution on Wall Street. It's a proud member of the Dow, and we all know the company's products: Band-Aid, Listerine, etc. J&J also makes diagnostic equipment and pharmaceuticals. It's truly a respected icon, as Steven Halpern found out.
Investors will be digging through J&J's third-quarter numbers next Tuesday, looking not only for signs about the economy but for signs about J&J itself. After all, everyone wants a defensive stock in their portfolios. A lot of companies aren't looking so defensive these days. Could J&J be the one?
According to Earnings.com, you shouldn't get too excited in terms of growth. The call for the bottom line is $1.11 per share. That would only represent low single-digit percentage growth. Of course, these days, that might be exciting enough. As to whether or not the bottom line will beat the analysts, I suppose the game is completely changed at this point, but I figure J&J will pull through on that count. It all depends on how much we can trust history given the brave new economic world we are suddenly faced with. According to this earnings analysis source at AOL Finance, J&J beat estimates the last four times at bat. Due to this strong recent trend, I'll assume J&J will deliver the goods.
So, let's assume J&J does please the Wall Street analysts. What then? Well, it's really going to be the outlook that's going to tell the ultimate tale. We'll have to see if management is going to give some positive thoughts during the conference call. What does management think about commodity costs and margins? What about the cash flows? Then there's the dividend and the share-repurchase program, two things which investors of J&J count on for long-term value. Management had a few things to say about these issues the last time around (please see the following transcript of the Q2 conference call). I think management is going to be cautious, but I don't feel that there will be any disastrous notes struck during the discussion with analysts.
Believe it or not, I actually feel bullish on J&J's stock ahead of the earnings. In theory, it should be a great defensive play. I mean, recession or not, diabetics still need to use those One-Touch blood-glucose meters, right? But the more telling thing to me is that we are down so much in terms of the major indexes, and J&J's stock has declined quite a bit as well. Year-to-date, the stock is down more than 13% and over 19% over the past month. There's got to be a bounce coming at some point, I would assume. It could very well be when the Q3 data is revealed.
But, I can't say that I'm going to trade it. I'd have to see how the price action shapes up as we get closer to the event. And if I did enter an earnings trade with J&J, I'd definitely have a tight stop on the stock in case things didn't go my way. Trading ahead of any company's earnings right now is awfully dangerous business. Another thing to point out is that the company hit a fresh 52-week low on Thursday. In fact, it closed at that low. That isn't encouraging from a short-term trading perspective in this particular case. You'll have to perform a lot of due diligence before you make a decision. Of course, long-term investors in J&J are having a jolly good time picking up shares of the stock. Sure, it might go lower from here, but as I'm sure you'll see from the upcoming earnings report, J&J is a pretty tough business that will prosper over time.
Disclosure: I don't own any company mentioned; positions can change at any time.
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