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Johnson & Johnson's Raspberries
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By BuildMWell
July 10, 2007

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"I don't like the fact that they are borrowing money to buy back stocks." - saltyseaweed

I agree that I wish they had the cash in pocket to do the repurchase, but what they are doing is the second best choice in my opinion.

When I look at the value of J&J over time, I see that the company is selling at a record low price right now. The company is cheaper now than anytime in the last 30 years.

http://invest.kleinnet.com/bmw1/stats30/JNJ.html

We must go back 13 years to 1994 and the full heat of the Hillary Care debacle to even approach the value that exists today. Of course, the most recent political attacks against pharmaceutical and healthcare companies may be part of the reason those sectors are beaten down today.

I see this move by J&J as a very encouraging sign. They are borrowing at low interest rates to buy their stock at a super-low price. Look at the average CAGR for the company versus the lending rate. They will be making money everyday that they own the stock versus their new debt. This is like forming a new business within the old business. Not only is management saying that J&J will be making money, but they are parlaying their earnings with their own derivative.

If you think they will not be earning enough to more than pay back the debt, run away quickly. But, if you believe in the company, please try to see this for what it really is. I love this move because it subliminally gives the non-believers a raspberry. The company is poking fun at Mr. Market for being such a dolt. What can Mr. Market know that J&J management does not understand even better?


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