Now that there are only a few weeks left in 2012, this is a good time for investors to look at the stocks they own and decide whether their performance has met previously set expectations. While investors will obviously look at year-to-date returns, they should also consider other factors -- namely, important structural changes in the company, negative news stories, and how well the company is staying profitable -- when determining whether a company deserves to remain a part of their portfolios.
Today let's examine how 2012 treated Johnson & Johnson (NYSE:JNJ).
Year to date, Johnson & Johnson's stock price has risen by 7.8%, while over that same time frame, the Dow Jones Industrial Average (DJINDICES:^DJI) is up 7.94%. The stock's 52-week range is $61.71 to $72.74, and with the price currently at $70.58, it is trading at the higher end of the one-year rolling range. The price-to-earnings ratio is 23.16, which is higher than the current P/E ratio of 15.89 for the S&P 500 (SNPINDEX:^GSPC).
The company's current dividend yield is 3.5%, and J&J maintained it dividend aristocrat status when the company raised the dividend by 7% back in April.
In February it was announced that CEO Bill Weldon would step down in April, at which time Alex Gorsky, J&J's previous head of pharmaceuticals in Europe, the Middle East, and Africa, took over the CEO job. Weldon had been the company's CEO since 2002. The change followed a number of high-profile product recalls that emerged over the past few years.
Johnson & Johnson has been plagued by product recalls over the past few years, and 2012 was no different. For any consumer product manufacture, the word "recall" is much like the name Voldemort for a Harry Potter character -- the most cringe-worthy thing a person can say. But Johnson & Johnson had to say that word nearly once every month in 2012.
The 2012 recalls started for Johnson & Johnson during the last days of January, when the Food and Drug Administration found a batch of Aveeno Baby lotion that had been contaminated with an overly large amount of bacteria. Then, in February, it was Infants' Tylenol, a product which was recalled before and only put back on the shelves in November of 2011. In the middle of April the company recalled 57,000 bottles of a popular epilepsy medication.In May, Imodium was being recalled because of a "packaging issue."
In June the company decided not to recall a product, but to remove it from the market a product following years of controversy surrounding the health benefits. The product was a mesh implant used to treat urinary incontinence. At the time, the company was facing two large lawsuits from individuals who claimed they were injured by the device. July came, and J&J's K-Y Liquibeads lubricant was taken off the market. Just weeks before the removal of the product, the FDA warned the company that it needed to follow up with customer complaints. K-Y Liquibeads had been approved for use by the FDA as an extension of other K-Y products, but now it needed to be approved on its own.
In August it was back to Recall Land when Johnson & Johnson pulled a bone putty product, which was used to stop bone bleeding, from the market. Health regulators believed certain batches of the putty had the potential to catch fire if they were contacted by certain surgical tools during an operation. In October the company recalled more than 157,000 surgical staplers. J&J said the device carried a serious safety risk due to possible malfunction. A representative announced that "as part of a business decision," the Endo-Surgery division of J&J stopped selling the product.
Shrinking margins and ownership
Johnson & Johnson's once dominant competitive advantage took some major hits this past year because of the recalls mentioned above and a few other big ones in the past two years. Johnson & Johnson's key business is the health care industry, which has a number of big players who are all too willing to take advantage of J&J's misfortunes. Due to these recalls, many consumers, and rightfully so, have lost faith in the quality and safety of their products. This has opened the door to manufacturers who produce lesser-known brands of similar products. Now that J&J has lost that elite status, the company's margins continue to shrink.
Another major hit for the company this year was when it was reported that famed investor Warren Buffet sold nearly his entire stake in Johnson & Johnson. The announcement that Buffet had sold Johnson & Johnson didn't come as a shock to most investors who follow him and the company, because he had mentioned that if he needed to raise capital, Johnson & Johnson would be on the possible sell list. But whenever Buffet makes a big exit from any company, it usually makes waves because of his belief in owning good companies for the long term.
Fool contributor Matt Thalman owns shares of Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.