Johnson & Johnson, Inc.

Trading at $98.10 on May 7, 2001

Who is Mom? Who is the sainted wonder who inspires a tattoo on a loving son's arm, or makes his fists fly if she's insulted?

Mom might be a housewife or a single mom. She might be harried with two jobs to make ends meet, or maybe she's a highly paid professional working long hours. Whatever her situation, no doubt she is trying to provide the necessities of life for her family while saving for her kids' future and her own retirement. We hope she hangs out at the Fool during her scarce and valuable free time.

(Hi Mom!) 

Drips for Mom
Mom definitely wants steady growth with the security of low downside risk, and she is the perfect candidate for Drip (dividend reinvestment plan) investing -- regularly buying shares of solid companies with great long-term prospects and reinvesting the dividends. Over time, the patient Mom investor will find herself rewarded.

Some well-known companies that offer Drips include PepsiCo(NYSE: PEP), Intel(Nasdaq: INTC), Campbell Soup(NYSE: CPB), and -- fanfare  please -- Johnson & Johnson(NYSE: JNJ). That last one jumps out -- how much more "Mom" can you get? A FOOL 50 component, as well as a Rule Maker Portfolio and Drip Portfolio holding, Johnson & Johnson makes products that include Band-Aids and Tylenol, baby shampoo and powder, Neutrogena skin and hair care products, Motrin, Monistat, Stayfree, Imodium A-D, Mylanta, Pepcid AC, and Reach. The list goes on. Moms (and Dads, too, of course) know these products well. They have children who need them (baby powder), and who drive Mom to use them (Tylenol). 

We believe in investing in companies whose businesses you know well, perhaps through your job or your passion or both. Mom knows Johnson & Johnson's consumer products.

Johnson & Johnson: Star performer
Now that we've got Mom's attention, here are the numbers that make any investor sit up and notice Johnson & Johnson, courtesy of Rule Maker Portfolio co-manager Rich McCaffery:

• Increased sales annually for the past 68 years
• Increased dividend annually for the past 38 years
• 10.6% average annual sales growth for the last 100 years
• Net income up 10.5% annually for the last 100 years
• Net income for the last 10 years grew 15.3% annually

And since Mom has been studying at Fool.com, she'll appreciate these other fine numbers for investors:

• Return on equity 27% last year
• Cash from operations almost doubled over last five years
• Cash King Margin jumped to 17% in 2000 from 14.4% in 1998

But consumer products are only part of this great growth story. The company has two other businesses, medical products/diagnostics and pharmaceuticals, that Mom may have less familiarity with -- unless she is a doctor or nurse. Rich lays out their role:

        Sales by segment   2000     1990     1980
Consumer            24%      38%      44%
Med. & diag.        35%      33%      32%
Pharma.             41%      29%      18%
Industrial           0%       0%       6% 

Mom can see that the pharmaceutical business provides the company's real growth today, and continued good returns depend on solid performance in the high-margin drug business. The company does not rest on a few blockbuster drugs: Johnson & Johnson sells over 100 prescription drugs worldwide for illnesses including anemia, psychosis, epilepsy, Alzheimer's disease, and gastrointestinal disorders. Thirty-one drugs had over $50 million in 2000 sales, while 20 brought in over $100 million. And an increasing number result from J&J's Centocor and Ortho-Biotech biotechnology operations.

Johnson & Johnson must grow its pharmaceutical operations to continue its excellent historical record. Its extensive drug candidate pipeline should provide growth fuel, and, along with the company's current drug product diversity, can protect it from the failures that every drug maker expects, such as its gastrointestinal drug Propulsid, which had to be withdrawn from the market for safety reasons.

This great company has rewarded investors with 18% annualized returns since its 1944 IPO, and it has a great shot at continuing to perform well. Johnson & Johnson is a solid stock for Mom.   

Tom Jacobs (TMF Tom9) is not telling whether or not Mom used Johnson & Johnson's baby powder on him, but he certainly made her a candidate for Tylenol. At press time, he owned no shares of companies mentioned. To see his stock holdings, view his profile , and check out The Motley Fool's disclosure policy.

A Stock for Mom represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts.

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