The end of 2015 is approaching rapidly, and I’ve remained optimistic about U.S. stocks — the Dow Jones Industrial Average in particular. I believe a Santa Claus rally is likely for a variety of economic factors, as I explained earlier this week.
Several specific Dow components are especially appealing to me, though, and Johnson & Johnson (JNJ) is one of them.
JNJ stock has been slightly underperforming the broader blue-chip portfolio year-to-date, resting a bit in the red at the moment.
Johnson & Johnson started its slow-and-steady downward trend back in January, with the selloff heating up in late summer. But since late September, shares are showing signs of a recovery, having almost regained its losses for the year.
I’m confident this upward trend will continue and that JNJ stock is a buy at these levels.
While shares of Johnson & Johnson were a screaming bargain during the downfall, I understand the hesitation to attempt timing a bottom. Because of that damage, though, Johnson & Johnson remains a value while also boasting upward momentum.
JNJ Stock Is a No-Brainer Value Play
Johnson & Johnson took a beating this year thanks to sales and earnings declines, controversy around its pharmaceutical division and mixed reactions to news of some asset sales. But the reality is that JNJ has suffered blips before and has weathered them just fine, which is precisely why it’s the kind of company you want to hold long term and up your position in during downturns.
Johnson & Johnson boasts a diversified portfolio of consumer products, medical devices and prescription products — the majority of which are part of the day-to-day lives of everyday Americans and the medical community. That offers investors exposure to the healthcare megatrend, as spending continues to chug up (especially as populations age), using diversification as a safety cushion.
Around 70% of JNJ’s revenues come as a result of either No. 1 or No. 2 positions in their respective markets. That’s the case for some of the notably promising markets, such as medical devices. The medical devices market is worth over $325 billion and JNJ has leadership in 17 different categories within it.
This impressive track record translates to a rock-solid balance sheet: Over the past year, revenue tallied just over $70 billion and gross profit tallied just over $51 billion, while the company also was sitting on over $37 billion in cold, hard cash. That translates to more than $13 of cash per share and easily overshadows the company’s $20 billion debt pile.
The company isn’t just sitting on its cash, though. Johnson & Johnson is a pro at reinvesting, as seen by its return on equity of 20%, and it also has a nearly unbeatable dividend history. Johnson & Johnson has increased its payout for 53 straight years and currently boasts a yield just shy of 3%, even after the recent rebound. That’s gold in the current low rate environment, and is only going to change incrementally with the December rate hike.
The stock, put simply, is a bargain considering its resilience, diversification and dividend. Add it up, and JNJ stock is a no-brainer.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
