Few companies have been spared in the latest market correction, but the drop in stock prices presents an opportunity for patient investors. It’s actually scary the amount of blue-chip stocks trading at values right now.
A prime example is Johnson & Johnson (JNJ).
JNJ stock has been under pressure, off about 17% from its recent high, but Johnson & Johnson could be a pillar of stability in these turbulent times.
JNJ Stock: A Brand You Can Bank On
At the core of Johnson & Johnson’s business is the consumer division (receiving about 19% of overall revenues), which covers areas like oral care, skin care, women’s health and baby care.
Of course, JNJ’s consumer brands are epic, featuring household names in Tylenol, Motrin, Lubriderm, Sudafed, Zyrtec, Band-Aid, Neosporin, Pepcid and Listerine. Such products are likely to provide consistent cash flow, regardless of the economic situation.
But JNJ stock also offers investors the potential for growth.
For example, Johnson & Johnson has one of the world’s top businesses in medical devices, with products boasting top positions in key markets like orthopedic, surgical care, specialty surgery, cardiovascular care, diagnostics, diabetes care and vision care. Which, at the end of 2014, JNJ reported as having 10 platforms raking in more than $1 billion each.
Although, the biggest catalyst for JNJ stock is likely to be from its pharmaceutical business, which is the company’s largest segment (at about 43% of overall revenues). It certainly helps that the research and development expenditures, venture investments and acquisitions have been aggressive. The result is that Johnson & Johnson has a staple of top drugs like Invokana, Xarelto and Stelara.
And JNJ’s pipeline shows promise, too.
JNJ believes that — for this year — seven of its new drugs will exceed $1 billion in sales. And by 2020, JNJ expects more than 10 new drugs will achieve this goal.
To remain on the cutting edge, Johnson & Johnson has been smart to leverage Big Data, social media and mobile. In fact, the company has been aggressive with online ad campaigns on platforms like Facebook (FB). JNJ also has innovative partnerships with Apple (AAPL), IBM (IBM) and Google (GOOG, GOOGL).
Given all this, it should be no surprise that JNJ has rock-solid financials, generating positive adjusted earnings over the past 31 years. The balance sheet also sports a sterling AAA credit rating.
The dividend has also been a rock of stability (with increases for the past 52 straight years). During the past ten years, JNJ has paid roughly 70% of its cash flows back to shareholders in dividends and share buybacks.
As for the valuation on JNJ stock, its forward price-to-earnings ratio is a reasonable 14. This is in line with other Big Pharma players, such as Pfizer (PFE) and Merck (MRK).
But again, with JNJ there is a widely diversified platform, which offers a nice blend of stable cash flows and growth opportunities. In the meantime, investors can enjoy a dividend yield of about 3.2%.
So all in all, JNJ stock seems like an ideal way for investors to deal with volatile equity markets.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
