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Johnson & Johnson
JNJ-N
BUY
Jan 03, 2024
Stock price when the opinion was issued
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Premium contentAfter spinoff, now just pharma and medical technologies/devices. One of 2 AAA-rated US companies (the other is MSFT). Pristine balance sheet forever. Divvy increases for 62 consecutive years, all from free cashflow. Crazy-cheap valuation of 14-15x PE, partly due to ongoing talc litigation. Yield is 3.34%.
Recent press release was like none other. Company stated talc litigation based on fake science; if the other side won't settle, JNJ will litigate each and every case separately. He suspects this is a ploy to force a settlement. Expects it to be over by year's end.
Premium contentIt reports Tuesday when we should get a legal update about those suing JNJ for cancer allegedly being in their talcum powder. It's been stuck in a range forever, though not in a perpetual downturn like other pharma. This could turn around on any big news on any new drug.
Premium contentAt Johnson & Johnson, we believe good health is the foundation of vibrant lives, thriving communities and forward progress. That’s why for almost 140 years, we have aimed to keep people well at every age and every stage of life. Today we are committed to using our reach and size for good. We strive to improve access and affordability, create healthier communities, and put a healthy mind, body and environment within reach of everyone, everywhere. Social media mentions are up 18% in the past 24h.
High in 2022, series of lower highs and lower lows since then. Only positive is that on the most recent pullback it pulled back to a higher low. If you own it as one position among many, you probably won't lose a bunch of $$. Doesn't see it being a leading stock in the near term.
Lean into companies that are economically sensitive with pricing power; if their costs go up tomorrow, they can raise prices the next day.
Tough one. Spun out KVUE, which is in a nice space, but the stock's done nothing. JNJ is now more drugs and medical devices, and its stock's done nothing either. Drug companies are difficult to own, really have to do your homework.
He doesn't want to recommend selling. Drug pipeline sounds good. Good earnings release, and has a bit of earnings momentum behind it. So might not be the time to sell. Yield is ~3%.
JNJ offered its shareholders the opportunity to exchange JNJ shares for shares in Kenvue. The exchange was voluntary, and the exchange ratio was 8.03. Since this was an exchange of shares rather than just a pure distribution of the spinoff, the price of JNJ shares should not be as effected, since the company received JNJ shares from its shareholders, and effectively removed them from circulation, similar to a buyback. In effect, this causes the existing shareholders to own a larger piece of JNJ.
JNJ is near the same price where the spinout took place, and some of the price decline in JNJ can be attributed to the broader healthcare sector. If the healthcare sector continues to improve from here, we expect JNJ will also participate in this rally.
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