Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models, who have a competitive advantage in established markets, preferably with a favorable, global trend as a support. And with that in mind, Johnson & Johnson (NYSE: JNJ) is worth a review.The value proposition with Johnson & Johnson 'isn't rocket science,' as they say, even though the business model (obviously) involves a considerable amount of science.
In general, analysts expect sales declines in pharmaceuticals, stents, and consumer products to weigh on FY 2009 revenue. Still, JNJ's diversified and demonstrated business model (drugs, medical devices, and consumer products) and decentralization has scored touchdowns in the past, and will again in the years ahead.
Other positives: Aesthetics products and biosurgical items offer attractive, new, long-term revenue streams, and staff 'right-sizings' in several divisions have left a company that's leaner, but still well-positioned for growth. The First Call FY 2009/FY 2010 EPS estimates for JNJ are $4.51 to $4.87.
The risks include above-trend erosion of branded drug customers to generics, and possible drug pipeline disappointments, but with a p/e of 13, the risk/return is tipped way in favor of a Buy. Johnson & Johnson is one of those stocks in which you can buy 500 or a 1,000 shares for a child's college fund and in 10 years you'll be glad you did.
Stock Analysis: Johnson & Johnson is a moderate-risk stock. Consider buying a 25% position in JNJ now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your JNJ position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $36.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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