What happened
Shares of Johnson & Johnson (JNJ +0.62%) were sinking by 5.9% as of 3:31 p.m. EDT on Friday after the healthcare giant announced a recall of a single lot of its Johnson's Baby Powder. J&J stated in a press release that the recall was initiated "out of an abundance of caution" based on the results of a U.S. Food and Drug Administration (FDA) test that found "sub-trace levels" (no more than 0.00002%) of asbestos contamination in a bottle of its baby powder.
So what
The recall of one lot of a product might not seem like a big enough issue to cause one of the largest companies in the world to lose over $20 billion in market cap. However, the news spooked investors because it highlighted the risk for Johnson & Johnson as it faces multiple lawsuits related to alleged asbestos contamination of its baby powder products.
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J&J stated that it's too early to know if there were actually any problems with the lot in question. The company hinted that there could be other causes for the sub-trace presence of asbestos in the single bottle tested by the FDA, including cross-contamination of the sample.
Previous testing conducted by Johnson & Johnson, as well as testing conducted by the FDA, has not found asbestos contamination in the company's baby powder. J&J said that "thousands of tests over the past 40 years repeatedly confirm that our consumer talc products do not contain asbestos."
Now what
Investing in solid dividend stocks like Johnson & Johnson usually means lower volatility than investing in other stocks. However, J&J's asbestos-related legal battles make today's news about its recall more important than it would otherwise be.
Should J&J's recall lead to the discovery of further problems related to asbestos contamination, the stock could take a further beating. However, there's no reason at this point to think this will happen.
