There's an old -- and very appropriate -- investing saw that says, "Tips are for waiters." So I'm not going to bother giving you a stock tip. I do, however, have a stock idea for you.
What's the difference? Well, a stock tip is generally a hush-hush, wink-wink affair where the tipper expects the tip-ee to run out and buy the stock based on the tip alone. A stock idea, on the other hand, is a good starting point, but is in need of further research before it becomes a fully baked investment thesis.
So let's cut the jibber-jabber and get right to today's idea, Johnson & Johnson (NYSE:JNJ). The Motley Fool's CAPS community has overwhelmingly recommended this stock, with more than 11,000 members giving it an outperform rating versus just 410 who have rated it an underperformer.
To get a better look at how J&J stacks up, let's take a look at how it compares to other companies in the health-care industry:
|
Company |
TTM Net Profit Margin |
TTM Return on Equity |
Price-to-Earnings Ratio |
CAPS Rating
|
|---|---|---|---|---|
|
Johnson & Johnson |
20.5% |
28.8% |
12.2 |
***** |
|
Novartis (NYSE:NVS) |
18.5% |
16.3% |
11.6 |
***** |
|
Abbott Laboratories (NYSE:ABT) |
18.3% |
29.1% |
13.4 |
**** |
|
Merck (NYSE:MRK) |
25.3% |
30.3% |
9.4 |
**** |
|
Pfizer (NYSE:PFE) |
17.0% |
12.5% |
12.3 |
**** |
Source: CAPS, Yahoo! Finance, and Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
As you can see from the chart above, CAPS members like a bunch of the big-cap pharma names. Not only are they all relatively cheap on a P/E basis, but they sport high profit margins and enviable returns on shareholder equity. J&J stacks up well against the rest of the group, with profit margin and ROE among the best, a P/E that falls in the middle of the pack, and, of course, a strong vote of confidence from the CAPS community (five stars).
I have given J&J's stock a thumbs-up in my own CAPS portfolio, but I'm far from alone. CAPS All-Star LatePlay gave a thumbs-up late last month, noting J&J's "excellent fundamentals" and "good yield." Meanwhile, DemonDoug, one of the top-performing members of the CAPS community, has been bullish since October, when he pitched:
This is one of your best long-term bets for the next 10 years. A MUST buy under 60/share, will pay steady dividends that will continue to increase, they produce products in the real economy that are needed, from drugs to bandaids to shampoo to prosthetic implants, JNJ is a must own for any long-term value investor, again, under 60/share.
So what do you think? Is this an idea worth pursuing, or is Johnson & Johnson an overrated stock? Head over to CAPS and let the 135,000-member community know what you think. If you're not sold on J&J but want to take advantage of the collective intelligence of the CAPS community, fans of J&J have also been bullish on Apple (NASDAQ:AAPL) and General Electric (NYSE:GE).
Further Foolishness:
