Year-to-date, pharma giant Johnson & Johnson (NYSE:JNJ) stock, a Dow Jones component, is down about 6%. By comparison, the Dow Jones as a whole is down about 17%.

Given the market uncertainty over the COVID-19 pandemic, investors are understandably cautious about the outlook for many shares, including JNJ stock.

I enjoy reading about the history of markets, including bull and bear markets and recessions. And a brief glance at history shows that Johnson & Johnson has been one of the steady performers in every economic cycle. Therefore, I expect management to continue the tradition and find ways for the company to grow earnings in the long-run.

Investors should view any near-term weakness in JNJ stock price as an opportunity to buy the shares.

Johnson & Johnson is Working on Vaccine Development

According to a February 2020 research project led by Junxiong Pang of National University of Singapore and published in the Journal of Clinical Medicine, “rapid diagnostics, vaccines and therapeutics are important interventions for the management of the 2019 novel coronavirus (2019-nCoV) outbreak… With the emergence of 2019-nCoV, there are about 15 potential vaccine candidates in the pipeline globally.” This recent study mentioned a new vaccine by JNJ currently in the pre-clinical stage.

Then on March 30, Johnson & Johnson announced that it has identified a lead COVID-19 vaccine candidate that had demonstrated promise in pre-clinical testing. And by Sept. 2020, the group expects to start the Phase I human clinical studies. In addition, it has decided to increase its vaccine production capabilities in case the potential vaccine gets emergency use approval from the U.S. Food and Drug Administration (FDA).

This is a welcome development not only for investors in JNJ stock, but also for millions if not billions of people globally. However, it is important to remember that many experts do not expect a vaccine to be ready for human use in less than a year.

Therefore, we won’t  know the potential effect of a successful JNJ vaccine on company earnings until further clarity develops.

What to Expect From Q1 Earnings

In addition to the recent press release on the vaccine development, on March 27, JNJ management also put out a “Business Continuity Statement.” Although the group acknowledged that the business was facing a dynamic situation, it nevertheless remained in good to shape to work around various supply chain as well as logistical issues that would be likely to arise.

It operates in three segments:

• Pharmaceutical (where it does not see supply interruptions);
• Medical Devices (where it’s not experiencing significant product supply interruptions); and
• Consumer (it’s experiencing increased consumer-driven demand with certain products and markets).

The Street will heavily scrutinize these three segments when the company reports Q1 earnings on April 14.

The company released Q4 earnings in January, beating analysts’ earnings estimates. But revenue came in short. Quarterly revenue hit $20.39 billion, an increase of 1.77% YoY. Adjusted EPS came at $1.97, but was down 4.57% YoY.

The medical titan’s three segments combined give JNJ predictable cash flow and solid pricing power. Over the past year, it has generated free cash flow of almost $20 billion, a highly respectable number.

Around 50% of the company’s revenue comes from the U.S. However its overseas operations, and its emerging market businesses in particular, are also important growth catalysts for JNJ stock. Therefore, especially given the global impact of the COVID-19 pandemic, investors are likely to pay attention to its overseas numbers in Q1 results.

JNJ shares tend to be volatile around earnings release dates. Current shareholders may expect choppiness in the coming weeks.

The forward price-earnings ratio of JNJ stock stands around 14.8. Although that is not too rich for a strong business like Johnson & Johnson, if its Q1 results fall short of expectations, many investors may decide to stay on the sidelines for some time.

JNJ Stock May Remain Volatile for April

Most analysts would agree that the bull market we had from 2009 to early 2020 is now over. The Street is now debating if we’ll have a V-shaped or a U-shaped recovery. It is possibly too soon to say what the full economic and health effects of the novel coronavirus pandemic will be.

So JNJ stock may continue to be volatile in the coming weeks. Until we have more clarity on the state of the economy, broader markets are likely to stay choppy.

However, defensive companies usually benefit from constant demand for their products or services and aren’t typically correlated to the rest of the business cycle. Healthcare companies are considered to be defensive, and their shares might perform well during a recession.

JNJ stock’s 52-week range goes from $109.16 (March 23, 2020) to $154.50 (Feb. 2, 2020). The price is currently hovering around $137.

Are you an investor who also pays attention to technical charts? JNJ stock’s short-term charts paint a mixed picture, suggesting that it’s likely to trade within a range. While long-term investors would like to see the stock go and stay over $140, short-term traders are likely to keep the shares between $140 and $120, a level where the stock has long-term support.

I’d consider buying the shares if they fall toward or even below first $130 and then $120.

The Bottom Line on JNJ Stock

Johnson & Johnson is helping our country as well as the rest of the world win the battle against the COVID-19 outbreak. Even though it may not be the first or the only pharmaceutical company to develop a cure for the pandemic, it also has a broad-based business model with a global reach.

The company’s diversification means JNJ stock is less susceptible to economic cycles than market competitors. No matter what the economy does, consumers will buy the products of many of its strong brands, and Johnson & Johnson will likely maintain industry-leading market share in many areas.

Investors who buy the stock now will also enjoy a dividend yield of 2.7%.  The conglomerate has raised its dividend each year for well over half a century.

If you’d still like to have exposure to JNJ stock, but don’t want to have the full volatility that may come with it, you may instead consider investing in an exchange-traded fund (ETF). Examples of such an ETF would include the iShares Dow Jones US Pharmaceuticals Index (NYSEARCA:IHE), the Health Care Select Sector SPDR Fund (NYSEARCA:XLV), or the Vanguard Health Care ETF (NYSEARCA:VHT).

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.