Johnson & Johnson: Why Value Investors Should be LookingVW Staff
While the market has been less than stable the last few years, one stock that has remained relatively safe and successful is Johnson & Johnson (NYSE:JNJ) . Most recently, the pharmaceutical giant saw impressive results with a clinical trial for a new prostate cancer drug. Between this great news, as well as buzz over a potential split, it could be a great time to invest in Johnson & Johnson.
A recent study at the University of California-San Francisco found Johnson & Johnson (NYSE:JNJ)’s prostate cancer drug Zytiga to be extremely effective. In fact, the study found that it took twice as long for the cancer to progress in patients who took Zytiga along with their regular treatments than it did in patients who did not. Last year, the FDA approved Zytiga for use in treating prostate cancer that had metastasized to other areas of the body. The results are obviously great news for men at risk of the disease, but also great news for potential investors in Johnson & Johnson. Executive Director of the Prostate Cancer Research Institute Dr. Mark Scholz was quite impressed with Johnson & Johnson’s treatment.
“When you treat cancer patients you sometimes run out of options,” Scholz said. “We’ve had some patients like that since Zytiga was released that looked like the game was up, and they’ve been able to regain their lives.”
When considering which pharmaceutical companies to invest in, seeing quotes like this from respected researchers is enormously beneficial. Currently trading at around $67, I would expect the stock to continue to rise, especially if the FDA approves the drug for broader use. The news prompted Wells Fargo & Company (NYSE:WFC) to reiterate its support for the pharmaceutical stock, arguing the results of the study suggest it will be approved by the FDA for larger-scale use. In addition, the firm believes the drug could get $1 billion in sales in 2012 alone, leading it to continue giving it an “Outperform” rating.
Admittedly, Johnson & Johnson is not the only pharmaceutical company with recent cancer drug success. Bristol Myers Squibb Co. (NYSE:BMY) also announced recent success with cancer drugs, specifically ones that utilize the immune system. Pfizer Inc. (NYSE:PFE) also made recent cancer-related news by being cleared of wrongdoing in a breast cancer drug lawsuit. AstraZeneca plc (LON:AZN) (NYSE:AZN) continues to struggle facing an uncertain future with a yet-to-be-named CEO, while Novartis AG (NYSE:NVS) is having a tough time with the current economic situation in Europe, being based in Switzerland.
Another aspect that has investors bullish about the prospects of Johnson & Johnson is the fact that it could potentially split up. The fact that this is considered good news may be counter-intuitive on its face, but many analysts are saying this could be great the company’s value. Jim Cramer is one of these analysts, arguing that the stock’s 3.9 percent dividend yield combined with its potential split means investors should jump all over Johnson & Johnson. According to Cramer, often when a company breaks up, it equates to good news for its shareholders. Cramer cites research from Goldman Sachs Group, Inc. (NYSE:GS) that suggests Johnson & Johnson essentially has three separate businesses – pharmaceuticals, medical devices and consumer products. If the company were to break these groups up, Sachs believes the stock could reach $76. Thusly, Cramer believes now is the time to jump on Johnson & Johnson.
“In this awful environment, Johnson & Johnson’s the kind of stock you can circle the wagons around, with recession resistant businesses and a high yield,” he said. “Plus, if the new CEO
follows Goldman Sachs’ advice and breaks up the company, you’ve got a giant reward with an incredibly low amount of risk.”
Goldman seems to feel quite strong about the potential splitting the company has for profits. They also point to Pfizer Inc. (NYSE:PFE) splitting up and the success it had for that pharmaceutical giant. But as of yet, there is no indication from Johnson & Johnson CEO Alex Gorsky that the company will pursue this strategy.
Regardless of whether or not a break-up of the company occurs, other investors feel confident about the prospects of Johnson & Johnson as well. In a discussion over how they believe stocks will be better investments in the next decade than bonds, experts Marc Faber and Jeremy Siegel agreed on the bright outlook for Johnson & Johnson. Faber argued that over the next decade, investors should expect to make more money investing in Johnson & Johnson than if they invested in U.S. government bonds.
Investors seem confident about the safety of Johnson & Johnson’s stock. Many are confident in the dividend Johnson & Johnson provides, which is at nearly 4 percent right now. One investor credits the long-term success of some of the company’s consumer product brands, including Tylenol and Band-Aid. Overall, the feeling is that Johnson & Johnson will remain a safe and profitable company for the foreseeable future.
Johnson & Johnson is a safe long-term investment with promising potential for growth. Furthermore, the potential success of Zytiga makes Johnson & Johnson a great company to invest in right now. If the FDA announces that Zytiga will be approved for large-scale use, the stock will undoubtedly move higher, even if for only a short time. It makes sense, then, to buy the stock now, before the FDA makes its announcement. This is a gamble, as with the FDA, there’s always the potential for a surprise refusal to allow the drug to go forward. But so far, it looks like things have been quite promising for the prostate cancer drug. I recommend investing in Johnson & Johnson today.