Strong Buy: Johnson and Johnson (NYSE: JNJ)
Buy Range: $62 to $68 a share.
I am selecting Johnson and Johnson as our very first pick for this blog.
Friday, 1 June 07, Johnson and Johnson shares closed at $63.41 a share.
In a Nutshell, Here are 22 Reasons Why I Recommend You Buy Johnson and Johnson Shares NOW in the $62 to $68 range:
- The longterm Japanese Candlestick chart of mine shows JNJ shares "reconfirming" a longterm trendline three times in 2007. My charting service, stockcharts.com, only has data going back to 1990. Still the trendline shown (snapped from a start in 1994) is a continuation of a much older trendline starting in 1984 which I snapped on a JNJ Japanese candlestick chart using another charting service. This other charting service allows no "snapshots" of their charts to be cut, pasted or saved to my hardrive. If I could show you the older chart's trendline (23 year old trendline vs. this 13 year old trendline on the chart shown above) you would see the same identical rate of rise of the trendline.
- Extending my trendline to Jan. 1, 2010, I am looking for JNJ shares to be trading with a base range of $95 to $105 a share. This is approximately a 33% increase over the next 2 1/2 years. Figure in dividend reinvesting, and I am looking for no less than a 40% total return increase in share worth during the next 2 1/2 years.
- Johnson and Johnson has increased dividends every year for the past 40 years straight. The current dividend is .415 cents per quarter. This dividend was just raised 10.7%, or from .375 cents a share to its current .415 cents a share. (Note: Yahoo data does not go back to 1966 . . . the year JNJ started dividend payments with yearly raises.)
- Johnson and Johnson is formally positioned in one of the Top 3 performing sectors of all time according to Dr. Jeremy Siegel author of "The Future for Investors": healthcare.
- The Healthcare sector shall grow dynamically during the next 50 years as America and most of the Western World's population ages more quickly than new babies are born. At this time 76 million Baby Boomers in the USA are just beginning to retire. Also, immigration laws are being designed to add new immigrants to our overall population, increasing a pool of new social security/medicare payers who will also need healthcare and who will help pay for healthcare of retiring Americans with no health plans. Healthcare needs will explode, benefitting Johnson and Johnson in an exponential way during the next 50 years.
- Johnson and Johnson not only has consumer staples (Splenda, Neutrogena, Bandaids, Tylenol, cotton ear swabs, contact lenses,etc.) but many medical devices and prescription drugs.
- Johnson and Johnson bought out Pfizer's Consumer Healthcare Brands this past January. The products they've added to their pipeline of Consumer goods with the Pfizer purchase are names we all know: Neosporin, Listerine, and others. These new consumer products are just beginning to generate topline growth and will also filter quickly to the bottom line.
- Johnson and Johnson recently bought out China's biggest skincare/cosmetics maker, Dabao. This gives JNJ a foothold in over 3000 outlets, many of them second tier Chinese cities and towns where Dabao products are featured. . Dabao products are low to medium priced which will fit nicely with the more expensive Neutrogena products already sold by JNJ
- Brand name is one of the Top 50 in the world.
- It is one of the Top Ten Fortune 500 Companies.
- Forbes Magazine made JNJ one of their Top 5 stocks to buy in 2007.
- Warren Buffet, one of the greatest investors of all time, has recently upped Berkshire Hathaway's stake in JNJ to 48,665,600 shares. This is almost a doubling of the shares he already owned.
- Earnings on this giant have increased up a beautiful long straight trendline (for the most part) for over 40 years.
- People are afraid what will happen to healthcare stocks if Democrats take back control of the White House. However, “From 1948 to February 2006 the stock market has returned 11.95%. Under Republican control the stock market returned 9.53% and under Democratic control the stock market returned 15.26%” - Dr. Jeremy Siegel
- JNJ is well diversified and has more sales outside the US than anytime in its history. Regardless of what happens with healthcare in the USA, the broad product lines, and the surging Global Economy, will help take up any slack caused by US government controls placed in any healthcare bills in the next decade or so. JNJ is what I call a "global goliath".
- So great is JNJ, it is one of 30 stocks in the Dow Industrials. Liquidity is never a problem. This is a stronghold for many institutional buyers.
- The recent most quarterly report shows diluted earnings of $1.17 per share . . . or a 17% gain over same quarter in 2006 with .99 cents earnings. Several acquisitions will dampen earnings in the about to be reported quarter, giving investors a better chance at buying than our official buy in price.
- Recent weakness in JNJ's share price is probably attributable to negative investors sentiment over recent patent challenges. More notably, Cypher stent sales concerns about risk of blood clots from drug-eluting stents and new competition in stents . . . particularly after Boston Scientific bought out Guidant for a price higher than JNJ was willing to pay. The recent acquisition of Conor Medsystems gives JNJ a next-generation stent that should address many of these concerns. For a net $1.3 billion cash, taking an $807 million charge to 1Q07 earnings for IPR&D. . . There was a snag, however, with Conor's new CoStar stent. JNJ has discontinued sales of it abroad and has quietly stopped its pre-approval use application to the FDA. This will shave a few pennies off the bottom line for the year. Hopefully, this gives investors a little more time to average in their buys of JNJ this year.
- On 23 May 06, Cordis Corp., the heart device unit of Johnson & Johnson Inc., said it agreed to become the worldwide distributor of a line of bare metal stents made by Israeli medical device maker Medinol.
- Megatrend: Globabl pharma sales rose 7% last year. JNJ will benefit from their global exposure.
- Value Line rates JNJ as a 1 for "safety", meaning this is a stock which will hold up well in an major market downturn.
- Motley Fool's "The BMW Method" board is calling a buy on JNJ (using Mike Klein's charts posted on the highlighted website) based on their method of tracking Compound Annual Growth patterns on logarithmic charts invented by founder Jim "BuildMWell". This is a great mechanical screening tool which I added to my toolbox for Blue Chip Big Cap companies only two years ago. It is eerie how many times one of my longterm charts and one of the BMW method charts scream "Strong Buy" at the same time. My Japanese Candlestick charts led me to BUD, PFE, KO and many others in which the BMW charts were also crying out "STRONG BUY".
Okay, gang, that's 22 Reasons to Buy Johnson and Johnson now.
I hope we have a few more months of sideways or down action in shareprice so that we can all build sizeable holdings in our ports. Once it hits $68, I will throttle back on my purchases as I believe JNJ will then be "off to the races".
Think about the 3 billion new Capitalists unleashed overseas who are buying Johnson and Johnson healthcare products right now. Although individual Chinese investors cannot yet buy American companies, that day is fast approaching. And Johnson and Johnson owns many categories of consumer staples and healthcare products in China (and India) already, so the name will be one of the first to be bought.
One more bonus point to drive home: JNJ is not only a healthcare company . . . it is also a consumer staples company.
And I will remind you again from my blog about Dr. Jeremy Siegel's book showing how stocks outperformed real estate . . . the top 3 performing sectors with dividends reinvested over the past 50 years are:
- Energy
- Consumer Staples
- Healthcare
Hence, in JNJ, we have a very "safe" play which is focused in 2 of the top 3 sectors for share growth when dividends are reinvested every quarter.
As Mr. T sez, "I pity da fool who don't buy Johnson and Johnson here and now and hold that sucka forever."
7 comments:
Is Johnson and Johnson's dividend really rising every year by 10% or more?
Thx.
Hello. Sorry I didn't see your question earlier today.
Here's how to determine this.
Go back to my post and click on the highlighted sentence (in red print) which says "The current dividend is .415 cents per quarter."
After you click on this link, you will see Yahoo's table of dividends paid for I think about the past 35 years or so.
Please note we are speaking of percentage increases, not increases in cents.
If you have a problem with figuring out the percentage increase in dividends from one year to the next, let me know. I'll lay out he formula here.
Ciao,
DJ Rock
JNJ is not increasing dividends at a 10% rate. The Average Compound Annual Growth Rate of JNJ's dividend is 14.5% over the last 30 years.
The curve is a picture perfect exponential curve, too. JNJ is my second largest position next to SSD.
Also keep in mind that JNJ's dividend yield hasn't gone over 3% since 1984 (1984 was the only year this happened). Given that they have been continuing to raise the dividend like clockwork we can almost bet the bank that we will see at least a 14.5% price appreciation on average each year to keep up with the dividend increases. I put the bottom end of total return on JNJ over the next long while somewhere in the 16% range (handily beating the market).
Sand105
BMW Board
Excellent addition to the comments, Sand.
For those of you emailing me questions about CAGR, what Sand is telling you is this:
The actual dividend growth "average" over time is 14.5%, not the 11.7% increase announced this year.
What makes a dividend average vacillate?
Stock price is one.
Let's take a stock which pays a $1.00 dividend for a year. Let's say the share price of the stock is $25.00. Divide $1.00 by $25.00, and that stock has just paid your a 4% yield (actually a bit more if you dividend re-invest).
Let's say the following year, dividens were not increased, yet share price moved up to $33.33 per share. Now your yield is 3%.
Now what Sand is saying is the compounded average growth rate of JNJ "over time" (in this case the past 30 years) average 14.5% . . . somwthing I did not know myself.
Another point I will make: JNJ closed below my target "buy" area of $62-$68 a share Friday 8 June 07.
So what do you do here, novice investors?
You BUTT.
That means, You "Back Up the Truck" and load up on shares.
I promise you this: anybody buying JNJ at this newly reduced fire sale price less than $62.00 per share will be able to hold these shares "forever", let the dividends reinvest, and you will be able to teach your loved ones years from now how you bested Warren Buffet in your purchase of one of the safest stocks on the planet.
It's on sale, it has a dividend CAGR of 14.5% over 30 years. It has increased dividends for over 40 years straight.
You don't need Benny Hill to come up and smack you upside the head to give your investment religion.
This is where you wade in and Buy as much as you can of one the most Blue Chips of the Blue Chips.
Do this now and you can thank me at my 105th birthday in 50 years.
Tip of the baseball cap to Sand105.
p.s. Please excuse the typos. I just came home from work, watched a film, and now I'm too tired to correct mistakes.
Two additional notes:
1. I bought 32 shares of JNJ for my girlfriend's Roth IRA today at $62.35 per share.
2. Secondly, seeking alpha had this news on the JNJ pipeline:
Johnson & Johnson announced at an analyst meeting Thursday that it expects to file for approval for five new compounds by the end of 2007 and a further seven to 10 between 2008 and 2010. The company said it invested $5 billion in R&D last year, resulting in its best-ever drug pipeline. J&J plans to focus its research effort on disorders of the central nervous system, including infectious and cardiovascular diseases, oncology and hematology, immunology, metabolics, pain, and reproductive health. Sales slowed in 2005 and 2006 on competition from generic drugs and pricing pressure. According to Joseph Scodari, worldwide chairman of pharmaceutical products, many of the company's experimental drugs "have the potential to be first in class or best in class." In consumer products, the company forecasts its recent $16.6 billion acquisition of Pfizer's consumer unit should produce $500-600 million in synergies.
http://seekingalpha.com/article/37712?source=d_email&u=22826
What makes a dividend average vacillate?
Stock price is one.
Rock,
This part isn't correct. Dividend Yield vaccilates due to stock price. Dividends themselves don't.
When I spoke of the CAGR over the last thirty years this takes all the dividends paid and draws a least squares fit through those numbers (taking out any "wiggle" due to year to year fluctuations) to come up with how much JNJ has raised their dividends each year on average. Turns out over the last 30 years they have raised the dividend 14.2% (I was off by .3% earlier) yearly.
How consistent are they? Over the last 15 years the Average CAGR is 14.3%. Over the last 40 it is 15.2%. Recently (over the last 5 years) it is 16.0%. Talk about consistent.
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