There's little doubt that companies in the Dow Jones Industrial average appear to defy logic, despite market capitalizations in the hundreds of billions of dollars. Johnson & Johnson
As I mentioned in my opener, I think that current concerns over Procrit, drug-eluting stents, and the DePuy medical device unit are only short-term in nature and are masking what is otherwise a very strong, well-diversified business. In other words, J&J's stock will perform like the stocks of its peers once near-term challenges subside.
In terms of valuation, we're looking at a company that has grown annual earnings and cash flows in the double digits over the past five years. Despite this growth, J&J has experienced significant multiple contraction, as its P/E ratio has dropped from 32 at the end of 2000 to a current 18.
This is not much different than many of the Dow Giants, including Wal-Mart