Earlier this month, Johnson & Johnson
While it may take years to see whether the reorganization will help the Income Investor pick, some additional companies could benefit from the reorganization far more quickly.
J&J is taking the adage "You've got to spend money to make money" to a whole new level. It's setting up a whole new unit, aptly named the Office of Strategy and Growth, solely to find new growth opportunities. While some of those prospects will probably be developed internally, the company will almost certain use some of its $8.3 billion in cash and short-term investments to purchase a company or four as well.
Potential new acquisitions or partnerships could come from anywhere, but any companies J&J picks up will likely be very specialized firms developing innovative technologies. For example, a company like SonoSite, which sells portable ultrasound machines, could benefit from J&J's extensive sales force, especially as it develops new products and continues to expand overseas.
As another possibility, J&J might pick up a company more in its infancy. Hansen Medical
J&J could especially use some shoring up in its pharmaceutical and biological businesses. With its antipsychotic Risperdal and Alzheimer's medication Reminyl losing patent protection next year, and with epilepsy and migraine treatment Topamax following suit a year later, J&J needs new drugs to replace falling sales from generic competition. There are still plenty of pharma takeover targets left, but another possibility for J&J's generic-competition woes might be to take a "if you can't beat them, join them" attitude.
I doubt J&J would go after a large generic-drug maker like TEVA Pharmaceuticals
Partners will benefit
In addition to the new growth division, the company also announced that it would form two new groups, one for surgical care and another for comprehensive care. While the realignment will effect sales of internally developed products, the real beneficiaries will be the companies that have marketing partnerships with J&J. They get a more focused sales group without having to pay the restructuring charges.
For instance, Omrix Biopharmaceuticals
Foolish final thoughts
J&J is far from out of the woods. It still has to deal with slumping stent sales and the same patent-expiration problems as big pharmaceutical companies. However, it has the advantage of being diversified enough that sales of orthopedic implants or products from its pickup of Pfizer's
Ultimately, the question isn't whether J&J will be able to turn things around, but how long it will take. Until management gets things moving again, you've got two choices: Enjoy the 2.5% dividend yield or look for other companies that might also benefit from its revival.
Barr is a Stock Advisor selection. Omrix and SonoSite are both Rule Breakers picks. Pfizer got the nod from Inside Value. Whether you like your companies big or small, dividend-laden or growth-happy, we've got a newsletter for you.