As of a few days ago, Johnson & Johnson's (NYSE:JNJ) stock price was up by 6.7% for 2012. Over that same time frame, the Dow Jones Industrial Average(DJINDICES:^DJI) was up 7.55%. Back in September, I predicted that Johnson & Johnson wouldn't beat the market, but since then the stock price rose 5.15% while the S&P 500 (SNPINDEX:^GSPC) climbed only 1.33%. The past few months, a number of events have taken place that could have changed my opinion on Johnson & Johnson. Read on, and I'll reveal my prediction moving into 2013.
The past few years have been tough for the company, as it's been plagued with product recalls. I recently noted that in 2012 J&J had a product recall nearly once a month. That opened the door for generic brands to step in and take market share from the once-dominant industry leader. Worse still, some consumers no longer trusted the safety of J&J's products, and a number of investors no longer believed the company was a viable long-term holding.
When Warren Buffett dumped nearly his entire stake in J&J, not only did the share price take a hit for days after the announcement, but the long-term effects will also be felt during 2013 and perhaps beyond. Long-term value-oriented shareholders like Buffett probably won't even give J&J a chance in 2013 simply because Buffett sold the stock just a few months ago, given than Buffett is known as an investor who will hold a stock not for months or even years, but decades. With few catalysts for the stock, losing the value investing crowd is likely to dampen the stock's price appreciation in the coming months.
But one catalyst that our health-care industry analyst here at the Fool believes will propel the stock in 2013 is the fall of robotic medical devices. With Affordable Care Act laws starting to go into effect within the coming weeks, and higher taxes on the sale of medical devices as part of the law, many investors believe companies such as MAKO Surgical (UNKNOWN:UNKNOWN) and Intuitive Surgical (NASDAQ:ISRG) will take big hits in 2013. If these cutting-edge medical-device makers slide in the coming year, it's believed that J&J will jump in and take some of the business. Some analysts think that the lower price points of J&Js older, more traditional surgical devices will make them popular choices in the year ahead.
Whether or not higher taxes on medical devices push the new technology out of the reach of the mainstream medical community in 2013, the stage is already set, and eventually, whichever medical device is safer for the patient will be the one that ultimately wins the battle. But I also believe that the industry has room for all three companies in the future, whether they remain as separate competitors or join in some kind of an alliance to maximize profits.
Although the S&P 500 has lost to Johnson & Johnson since September, I believe the index will beat the stock over the next few years. But I will remain a proud shareholder during that time. Even with all the product recalls over the past few years, J&J is a company that was built to last the test of time. You may not beat the market owning the stock during the next few years, but you will certainly sleep better at night knowing that the stock is much less volatile than the overall market.
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Fool contributor Matt Thalman owns shares of Intuitive Surgical, Johnson & Johnson, and MAKO Surgical. The Motley Fool owns shares of Intuitive Surgical, Johnson & Johnson, and MAKO Surgical. Motley Fool newsletter services recommend Intuitive Surgical, Johnson & Johnson, and MAKO Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.