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Given the recession-resistant reputation of companies operating in the health care industry, Johnson & Johnson
The primary culprit for J&J's lagging share price performance is the uncertainty stemming from two primary operating segments. Nearly 40% of sales come from the pharmaceutical unit and a stable of billion-dollar drug franchises such as Remicade, Procrit/Eprex, and Topamax. The challenges in pharma are similar to those that archrivals such as Merck
The medical device segment, at about 35% of sales, is seeing its own challenges, thanks to uncertainty over the safety and effectiveness of drug-eluting stents and claims that companies operating in the orthopedic industry were getting too cozy with surgeons to support sales and boost product loyalty. Rivals such as Boston Scientific
Throw in a struggling stock market that is preoccupied with whether the U.S. is officially in recession and it's easy to see why J&J's share price has been overly anemic as of late. But take a step back and it becomes apparent that now is a great time to consider anteing up for some shares. For starters, the third and final consumer segment, which makes up about a quarter of sales, is, like industry leader Procter & Gamble
The coming year should turn out just fine as well -- analysts are calling for earnings of $4.45, which puts the stock at a very reasonable 14 times earnings and happens to be one of the lowest multiples J&J has traded at in 15 years. Throw in a 2.9% dividend yield, and not only do I see a stock built to withstand a further bear market, I also see one with plenty of upside potential, given its diversified revenue stream, impressive profitability, and geographic breadth. I'll take that in any economic climate.
Don't just take my word for it. The Motley Fool CAPS community has awarded J&J a five-star rating, which happens to be the highest a company can garner. The bullish commentators speak to J&J's consistency and ability to perform in any economic environment. The best the bears can come up with is to bemoan the stock's trading range and fact it has moved little in the past couple of years. But let me tell you, that's not all that bad, considering that the market is flat and rivals such as Amgen and Boston Scientific are down close to 30% over this time frame. All the more reason to consider J&J a recession-proof holding with plenty of potential to bounce ahead once conditions become more favorable.
If you agree with me that J&J is headed for better things, jump on over to CAPS and rate J&J an outperform.