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DivMonk (88.59)

JNJ at a discount

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September 13, 2010 – Comments (5) | RELATED TICKERS: JNJ , PG

Both JNJ and PG are excellent companies trading at fairly low valuations.  JNJ in particular seems quite undervalued, with a P/E of under 13.  Bad news is a good time for value investors to buy, because while the market is focused on this Tylenol mishap, long-term investors hopefully realize that JNJ is a hugely diverse company with a variety of products and therefore is in a position to brush off damages to select brands. 

 

JNJ Stock Analysis Report

PG Stock Analysis Report

 

Consider JNJ.  The company had over $61 billion in total revenue in 2009.  The Consumer Segment of the company contributed $16 billion of that total, the Pharmaceutical Segment contributed over $24 billion, and the Medical Devices Segment contributed over $23 billion.  The revenue streams are diverse, the brands are well-known, and the company pays out a significant yield while you hold the stock (and a yield that's higher than it has been much of its history).  

 

JNJ and PG both outperformed the market this past decade (which, admittedly is not saying much), even though both of them were at high valuations 10 years ago.  Now, both of them are at very reasonable valuations, and JNJ in particular is looking quite attractive.  It's like buying platinum at silver prices.   PG is not quite as low, but still better than a lot of other options out there and pays a great growing dividend.  

Full Disclosure:  As of this writing, I currently hold stock in both JNJ and PG.  

 

5 Comments – Post Your Own

#1) On September 13, 2010 at 6:48 PM, Valyooo (35.98) wrote:

I'm with Ýou on jnj. This happens to them from time to time, it gets way sold off, and then bounces back hard, paying growing dividend. With buffett buying more too you can be confident

This is a long term hold

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#2) On September 13, 2010 at 8:29 PM, ikkyu2 (98.20) wrote:

JNJ is a stalwart large cap that will track the market.

That said, they're currently shrinking revenue and shrinking earnings year over year; and they're fairly priced at a P/E of 12.5 for their historical earnings growth rate, which is an anemic 7.5% over the last 5 years; plus their yield, which is 3.1%.

At these prices, I'd want to see a significant upside catalyst.  Long term, sure, this is a pretty sure bet to grow your money to keep pace with inflation or even a little better.  The problem with these kinds of companies is that it is quite possible to mistime your investment - and we're talking one month in either direction - and catch a 20 or 30 percent drop that will take you 5 years to gain back just to get to even.  Meanwhile, that is dead money; and the fact is, most investors will eventually lock in their loss.

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#3) On September 13, 2010 at 9:31 PM, Valyooo (35.98) wrote:

I'm with you, but like you said it drops 20 to 30 percent sometimes...that way you get in at the right time. A pullback on jnj to me = a high yield safe bond

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#4) On September 13, 2010 at 9:55 PM, 1445099963 wrote:

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#5) On September 13, 2010 at 10:05 PM, DivMonk (88.59) wrote:

 Hi all, thanks for the comments.  Two things:

1)  The solution to considerable drops in stock price is to enter your position over time rather than all at once.  And for that matter, if JNJ were to drop 20 or30% without massive changes in underlying fundamentals, I'd LOVE that despite being a current stock owner.  If I consider it a good deal now, then with the same fundamentals but at a considerably lower valuation, it's an even better investment, and I'd look to buy more.  

2)  JNJ has not been "shrinking revenue and earnings year after year".   They've had fairly consistent growth over the past decade.  2009 saw a rare decrease, and 2010 is fairly flat.  

 

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