It's hard to argue that Johnson & Johnson (JNJ 0.82%) stock is not a buy. Ever.
To prove my point, I looked at the multi-year chart and picked out some of the peaks. Even if you purchased near the yearly top, you're still sitting on a better return than if you had purchased an S&P 500 ETF.
|
Date |
Johnson & Johnson Dividend-Adjusted Return |
S&P 500 Dividend-Adjusted Return |
|---|---|---|
|
June 27, 2012 |
34.1% |
23.7% |
|
June 8, 2011 |
40.6% |
31.6% |
|
April 9, 2010 |
49.3% |
44.2% |
|
Aug. 8, 2008 |
43.6% |
38.8% |
|
Oct. 20, 2006 |
56.6% |
35.7% |
Source: S&P Capital IQ.
Of course, Johnson & Johnson stock is sometimes a better buy than at other times. If you purchased near the yearly lows, you're sitting on an even better returns, trouncing the S&P500.
|
Date |
Johnson & Johnson Dividend-Adjusted Return |
S&P 500 Dividend-Adjusted Return |
|---|---|---|
|
June 1, 2012 |
45.1% |
29.2% |
|
March 18, 2011 |
60.1% |
32.3% |
|
July 23, 2010 |
67.2% |
55.4% |
Source: S&P Capital IQ.
Run-up helped
The assumption that you'll be OK buying almost anytime works only if you hold on to Johnson & Johnson stock for long enough. I ran similar calculations looking at the returns through the end of last year, before Johnson & Johnson stock went on its monster run. The results weren't nearly as pretty.
|
Date |
Johnson & Johnson Dividend Adjusted Return Through Dec. 31, 2012 |
S&P 500 Dividend-Adjusted Return Through Dec. 31, 2012 |
|---|---|---|
|
June 27, 2012 |
6.8% |
8.3% |
|
June 8, 2011 |
11.9% |
15.2% |
|
April 9, 2010 |
18.8% |
26.2% |
|
Aug. 8, 2008 |
14.3% |
21.5% |
|
Oct. 20, 2006 |
24.7% |
18.8% |
Source: S&P Capital IQ.
Apart from for the longest holding period -- the exception that proves the rule -- the S&P 500 topped the returns for Johnson & Johnson.
Looking forward
I think the recent run-up is justified, given how pessimistic investors have been over the last few years as Johnson & Johnson dealt with manufacturing issues and recalls. But I wouldn't be surprised if were near a yearly high, given how much Johnson & Johnson stock has increased over the first half of the year.
Fortunately, there are a few upcoming events that could help Johnson & Johnson stock increase in value, or at the very least help prop it up.
Second-quarter earnings are scheduled to be released on July 16. Investors should keep their eyes on Johnson & Johnson's recently launched diabetes drug Invokana. If Johnson & Johnson can persuade doctors to give it a try, there's potential for the drug to compete with Merck's (MRK 0.92%) top-selling oral medication Januvia. Taking just a portion of Januvia's multibillion-dollar market would give Johnson & Johnson stock a nice boost.
Investors should also watch Johnson & Johnson's hepatitis C drug Incivo that the health-care giant sells abroad for Vertex Pharmaceuticals (VRTX 1.43%). Even though it has to ship some of the profits to Vertex, Incivo is a moneymaker because doctors in Europe haven't started cutting back on prescribing the drug while they wait for next-generation hepatitis C drugs as they have in the U.S., where it's called Incivek.
Johnson & Johnson has one of those in the works, too. Toward the end of the year, look for a Food and Drug Administration approval of Johnson & Johnson's hepatitis C drug simeprevir, which will go up against Gilead Sciences' (GILD 0.28%) sofosbuvir, which will be approved around the same time. Data from the combinations of simeprevir with its partners' hepatitis C drugs will help investors gauge how well Johnson & Johnson can compete with the all-oral cocktail that Gilead is developing.
