Johnson & Johnson (JNJ)

They report on Tuesday. He sold it and would avoid it. Has no expectations for it.

He gave up on JNJ (and made a small profit), because he was tired of being held hostage to legal decisions that had little to do with the greatness of this company. The legality concerned traces of asbestos in its baby powder that may have caused cancer in some customers. Twenty years ago, any whiff of an asbestos lawsuit would have triggered an instant sell. He forget how ugly such lawsuits could be. In the 1980s, a number of companies lost asbestos lawsuits. After researching the JNJ suit, he concluded that JNJ acted in good faith or didn't know about the asbestos or an accident at worst. Turns out that was a mis-judgement he made. A seemingly endless number of lawsuits were launch, and there was a $2 billion judgement against JNJ that stated that the company didn't take the plaintiff seriously enough. Then, JNJ paid $8.9 billion to the plaintiffs, which he thought was a brilliant strategy, but the 3rd-circuit court in Philadelphia hated this settlement. Meanwhile, JNJ reported a terrific quarter and spun-off its consumer products division successfully. He bought JNJ for its fundamentals, but he was actually betting on the thing that controlled the stock--the litigation. You never want to play that game. In the end, he was far too sanguine about JNJ's handling of the lawsuits. When a judge ruled that JNJ would not go bankrupt or blocked the company pursuing bankruptcy. That's when he sold.

They report Tuesday. If they announce any resolution in the talcum powder lawsuits, this stock will jump 10 points.

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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(A Top Pick Dec 28/22, Down 9%)

Recently sold shares. Spinoff of consumer products business has not gone well. Stock not performing well. Recent litigation is a big worry. 

Medical devices are an important area that keeps people out of expensive hospitals, improves quality of life, and reduces reliance on drugs. Great advances, which will grow over the years. You want to be in this area. He owns SYK and JNJ in the space.

Looking back on 2023: JNJ has one of the best pharma pipelines in the business. However, he sold it because he got tired on their many lawsuits over baby powder (having traces of asbestos, allegedly). Originally, he concluded that the company didn't know about the asbestos, but then the lawsuits piled up. JNJ offered to settle with claimants. He bought this for the fundamentals, but then it became about the settlements amounting to billions. There are easier ways to make money. He eventually sold.

Has long owned this. Got upgraded today. Pays a 3% dividend yield and trades at 15x forward PE. Healthcare will improve in 2024.

Lots in pharma going off-patent around 2025, but pipeline's pretty good. Medical devices suffering from weight loss drugs meaning fewer joint replacements, but this fear is overdone. Talc litigation overhang, stock should lift once gone. Attractive multiple of 15x, AAA balance sheet. Yield is 3.2%.

The dynamics have changed. They sold off the personal care division and can now spend money on pharma and medical devices. They pay a good dividend which is increased regularly. The lawsuits including the one related to talcum powder holds it down but it trades at a good multiple,

Has sold shares in company. Does not own anymore. Breakdown in support. Moved on to greener pastures. 

It is now left with the pharmaceutical and medical devices divisions. The overhang is some litigation but it has a triple A balance sheet and recent earnings are good. The yield is good and it is attractively priced so buy for both growth and income.

They're having a terrible year, but the PE is now cheap. They sold off their consumer division. Their last quarter they beat earnings: medical devices grew 10% and pharma 4.5%. Will continue to grow. Have a lot of cash. Have raised their dividend for 45 years, which will continue. One issue is their talcum powder [lawsuits over their talcum causing cancer], but they will appeal the ruling. Their psoriasis drug is coming off-patent, but they have enough in their drug pipeline to make up for that.

A trade, because it's stuck in a trading range, between $160-180.