Johnson & Johnson
"JNJ does not veer from a steady focus..."

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By jammerh
June 5, 2009

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Thanks for all the kudos on that last post. You're too kind.

I didn't mean to make it sound like I thought I was in Warren Buffett's league. I doubt if anyone is even close to this guy in terms of his overall stock-picking abilities, and self-discipline. I've made mistakes - and some of them were lollapaloozas.

Buylowersellhigh asked, "Is there anything right now you find particularly attractive or on your watchlist?"

I probably should have responded earlier, but I don't get to check these boards as often as I'd like. The short answer is BRK - and GD which was mentioned earlier.

For anyone who may be interested, here's the long answer:

I'd caution against taking anyone's recommendations too seriously. Most individual investors who have been around awhile have their own stories to tell, and many of us have a funny way of remembering our better moves more clearly.

I'd suggest looking at only the best quality companies. Don't buy a stock just because it is cheap. Be willing to leave a little money on the table in order to buy companies whose products you like, and whose managements you'd have your children (if you have any) marry.

Do as much research as you would if you were buying a small business. Check out all the guff you can find on suppliers, customers, and competitors. Look for companies with well-protected moats - businesses which new competitors would find challenging to duplicate.

Look for companies that can't be easily copied by the Chinese, the Russians, or anyone else for that matter.

JNJ has great management, a solid balance sheet, and a consistent track record of growing the dividend. I like strong foreign sales which helps protect against any devaluation of the U.S. dollar.

But there's another important quality which drew me to JNJ in the first instance years ago, and that's the company's diverse array of businesses. With more than 200 units now under its umbrella, JNJ offers an unusual degree of diversification which helps shield investors from what would often be wilder fluctuations in any single business.

In this respect the company acts much like a mutual fund - without all the fees.

JNJ does acquisitions more effectively than most companies. In a world where many acquisitions are done for ego. JNJ does not veer from a steady focus on acquisitions of strategic significance.

JNJ doesn't get everything right. The company faces big challenges in its stent business with stiff competition breathing down its neck. And with pharmaceuticals at roughly 40% of overall sales, and generic firms eager to jump on the bandwagon, keeping the pipeline filled with new, and profitable products creates an ongoing challenge.

On the other hand, JNJ has a long track record meeting that challenge. It's a well-managed, innovative company with a strong balance sheet, great brand recognition, one of only a rare few with a triple-A credit rating.