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Johnson & Johnson (JNJ 0.35%) isn’t a new name to most people. The company’s stability and resilience in various market conditions has shown its true strength to buy and hold long-term investors. in this segment
Should I Buy Johnson And Johnson Stock
, Posted September 20, 2021 Contributor and new investor Rachel Warren shares why she chose Johnson & Johnson as one of her first 10 stocks to buy.
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Rachel Warren: Another great health promotion that I write about a lot. For me, it’s like any other big pharmaceutical company. J&J is one of the oldest pharmaceutical companies. He is already about 135 years old. And this is not one of those companies that will replenish your portfolio overnight.
But what I love, and I think a lot of investors love, is delivering slow, steady, consistent growth across markets. This is something you can really count on. It also pays good dividends, and qualifies as dividend king having increased its dividend every year in a row for more than 50 years. Its current dividend yield is around 2.6% last I checked.
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Also, above the S&P 500 average. I think people know J&J is mostly for consumer health products. You have brands that are in everyone’s house: Johnson’s, Aveeno, Tylenol, Motrin. But I think that really makes the company really attractive when you look at it from the perspective of the customer as a potential investor. Do you know if it is a company like people who use their product every day or if there is a constant demand for their product?
This can be a very good indicator of whether the companies in your portfolio will have any real staying power. Companies usually do not report very high annual revenue growth.
Generally, it is slow and steady growth. Sales growth was just under 1% in 2020 and then continued in 2021.
Rachel Warren owns Johnson & Johnson stock. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a Disclosure Policy.
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Invest better with Motley Fool. Get stock recommendations, portfolio recommendations and more from The Motley Fool’s premium service. Like any investor, I try to beat the market. To do this, I aim to trade below fair value companies with fair and credible growth prospects. However, I also lean toward companies with increased dividend payouts, low risk, and market dominance.
Johnson & Johnson (NYSE:JNJ) meets many of my criteria. JNJ is the world’s largest pharmaceutical company and the world’s third largest pharmaceutical company. It is one of two stocks with an AAA credit rating.
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While the company owns the most popular medicines, it also dominates orthopedics and is present in the rapidly growing field of digital robotic surgery. Its consumer segment provides investors with a slow but steady stream of income.
Costs for switching product line devices, patents, and intellectual property attached to the drug group and, to a lesser extent, the various brands within the consumer group, provide a concentrated moat to JNJ. Its effectiveness is evidenced by the price generating gross margins of over 70% for the last four years and the growth of adjusted operating profit for 35 consecutive years.
The company’s research and development efforts are booming, with a vaccine for Covid-19 and other promising drugs in development.
However, the company faced difficulties related to Covid and became the target of lawsuits from various quarters. Although fiscal 2020 revenue increased 8.3%, net profit decreased 2.7% due to $5.1 million in litigation costs. In addition, the size of the business means strong growth is unlikely.
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At the end of last month, Q4 results reported revenue of around $22.48 billion, up 8% year over year, while non-GAAP (adjusted) net income fell 1% to around $4.97 billion, or $1.86 per share.
Both numbers were good enough to beat analysts’ average estimates of $21.67 billion in revenue and $1.82 in earnings per share.
Pharmaceutical companies were big winners with a 16.3% increase in revenue. However, adjusted for acquisitions and divestments, organic growth for this segment will be 8.4%.
The consumer health segment posted 1.4% growth, while medical product revenue fell 0.7%. Overall, revenue increased by 8.3%.
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Management’s guidance for fiscal 2021 EPS of $9.40 to $9.60 is above the analyst consensus of $9.00. The same goes for management’s earnings forecast of $90.5 billion to $91.7 billion, compared to analyst consensus of $88.58 billion.
During the Q4 earnings call, management reported a 7.5% drop in full year earnings per share, largely due to COVID-related headwinds. The containment of the epidemic has had a significant impact on elective procedures, which has weakened sales in the medical device segment. This resulted in a 6% drop in revenue outside the US. Global orthopedics grew 5.3% year-over-year, while total device sales fell 2%. Sales of over-the-counter drugs fell 1.5%.
However, recent news about the company’s vaccine efforts should give investors hope. Late last month, JNJ published the results of its vaccine trial against Covid-19.
Based on 43,783 participants on three continents, the overall effectiveness of the vaccine was 66% in preventing moderate to severe COVID-19 and 85% in preventing severe disease.
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Up to 28 days after administration, the vaccine provides full protection against hospitalization and death from Covid-19. The vaccine was well tolerated by study participants, with no major safety concerns.
Opponents point to the lower effectiveness rates of JNJ’s vaccine compared to Moderna (MRNA) and Pfizer (PFE) (94.1% and 95%, respectively). However, JNJ’s research came after various variants of Covid emerged. There is also some concern about the effectiveness of Moderna’s and Pfizer’s vaccines against the new strain of coronavirus.
In addition, the JNJ vaccine has several advantages over competing vaccines. A single dose costs $10, compared to $19.50 from Pfizer and $32 from Moderna. Note that the Pfizer and Moderna vaccines require two injections, while the Johnson & Johnson vaccine is the one-shot method. The Pfizer vaccine requires very low temperature storage, while the JNJ vaccine can be stored for up to three months in a regular refrigerator. In fact, the loss of Pfizer and Moderna vaccines due to improper storage is common.
Another investor concern is that JNJ’s vaccine is “not for profit”. However, this condition does not last forever. The AstraZeneca (AZN) deal includes a clause that allows the company to sell the vaccine for a profit starting July 1, 2021. Johnson & Johnson may follow suit, but in a worst-case scenario, the company could increase the price of vaccines when the pandemic ends.
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Multiple sources, from WebMD to government agencies, predict that the Covid-19 shot will become an annual ritual, not unlike the flu shot. If so, that means the JNJ vaccine can increase recurring revenue.
Bernstein analyst Ronnie Gale estimates that J&J will generate $3 billion in sales of its vaccines in 2021 and predicts that the COVID vaccination market will reach $20 billion in 2021. Analysts at Morgan Stanley (MS) and Credit Suisse estimate the annual market size for vaccines against COVID-19 in developed countries alone is $10 billion or more.
The bottom line is that these developments often lead to new products that will generate billions in revenue. However, for a company the size of Johnson & Johnson, the huge profits it can generate could be a game changer.
JNJ ranks fourth among prescription drug companies. EvaluatePharma estimates a CAGR of 2.8% for the company’s drug sales from 2018 to 2024.
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Two of the company’s biggest blockbusters are Imbruvica and Stelara. Imbruvica sales are expected to more than double from $4.45 billion to $9.51 billion between 2018 and 2024. Stelara’s revenue will increase from approximately $5.3 billion to approx.
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