Wednesday, July 22, 2015

Recent Buy – Johnson & Johnson

Another purchase in my portfolio to close out this quarter. I added to my position in Johnson & Johnson (JNJ) with 15 shares @ $98.50. The stock yields 3.05% adding $45 to my annual dividend income.

Recent Buy Decision

  • Johnson & Johnson barely needs an introduction as it is one of the best known brand names in the world. The company is a well diversified healthcare giant with three major segments – pharmaceuticals, medical devices and consumer goods.
  • A global giant, sees revenue diversification breakdown of: 45% from US, 26% from EU, 18% from Asia-Pacific, and 10% from the rest of the world
  • JNJ came under a lot of pressure in 2014 with record recalls and lawsuits. As expected, JNJ has turned things around and the company now runs more efficiently with better QA in order to avoid similar mistakes.
  • One of only three companies having a AAA rating from S&P (the other two being Microsoft (MSFT) and Exxon-Mobil (XOM))
  • My healthcare diversification had shrunk – with only Amgen Inc (AMGN) making my other healthcare exposure. I decided to add here as the sector is recession-proof and is seeing robust inflation
  • JNJ expects to launch 10 new drugs by 2019, each with a $1B potential
  • A dividend champion, with 53 consecutive years of dividend raises, and 31 consecutive years of adjusted earnings increases


  • Operating in the healthcare/pharma sector, the company always runs the risks of FDA non-approval on new drugs
  • Patent expiry could see some revenue erosion/increased competition from generic drug makers
  • The strong US dollar provides a drag on international earnings
  • More QA issues resulting in product recalls as we saw in 2014


  • A blue chip name that almost always trades at a premium, getting a 3%+ yield is at an attractive valuation currently
  • The P/E, P/B, PEG ratios etc are all in a decent range based on historical valuation

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