Johnson & Johnson (NYSE:JNJ) might seem like the dud of the Dividend Aristocrats so far this year, with the stock down about 7% and fourth-quarter sales giving investors a little pause. But if you dig a little deeper into its business and Q4 report, you’ll find that JNJ is actually a diamond in the rough.
JNJ disappointed some investors after it reported that Q4 sales were down 0.6% year-over-year. But Johnson & Johnson did beat the consensus estimate for earnings per share by 1 cent, and profits overall were up 2.5% from the year-ago period.
In general, investors never like to see any declines in quarterly numbers — even if it’s a small percentage. But investors should note that Johnson & Johnson experienced some flukes it likely won’t face on a regular basis.
So before you write JNJ stock off as dead money, consider these three reasons why you should stick with Johnson & Johnson in 2015.
JNJ Sales Were Better Than You Think: Although sales for Johnson & Johnson’s Hepatitis C drug Olysio were down, CEO Alex Gorksy expected this to happen. He even warned investors. The majority of JNJ’s other drugs are going strong, though. For instance, sales for Johnson & Johnson’s oncology drug Zytiga grew 26% year-over-year even with competition from Medivation Inc. (NASDAQ:MDVN) and Astellas Pharma Inc. (OTCMKTS:ALPMY). And Xarelto, which is used to treat deep vein thrombosis, saw a 58% growth in sales this quarter. Overall, the company enjoyed 9%-plus growth in its pharmaceuticals division.
And that slight decline in overall sales? That was just the negative effect of currency translation. A strong U.S. dollar hurt JNJ’s sales figure in oversea markets. A strong-dollar environment could continue to weigh on Johnson & Johnson, but it’s not a reflection of JNJ’s quality.
Of Course, There’s the Dividend: JNJ is a Dividend Aristocrat that has increased its payout every year for 52 years, including its most recent increase of 6% to 70 cents quarterly. More impressively, the dividend on JNJ stock has grown more than 40% since 2010. At current prices, Johnson & Johnson yields a respectable 2.7%.
Promising New Investment: JNJ is making strategic investments that will only make Johnson & Johnson stronger. For instance, JNJ has stepped up its investment in Atlas Genetics which is working on a 30-minute STD test. A test like this should gain traction in the U.S., where tests currently have to be sent out to a lab and often take a few days to provide results.
Johnson & Johnson Reasonably Priced: JNJ currently has a price-to-earnings ratio under 18, making it an undervalued stock compared to its competitors. For instance, Pfizer trades at more than 23 times earnings, while Bristol-Myers Squibb Co (NYSE:BMY) has a lofty P/E of nearly 50.
Johnson & Johnson took some unnecessary heat after its fourth-quarter earnings report. But it’s still a dividend stock you can count on for decades, and it’s trading for a reasonable price.
Buy JNJ now while it’s still understood.
As of this writing, Dana Kobilinsky did not hold a position in any of the aforementioned securities.