Wednesday, March 11, 2009

Johnson and Johnson

I am reviewing this stock (NYSE-JNJ) because I follow it. As Canadians, we are told we should be buying US stocks for our portfolio. It is often recommended that we have at least 25% of our portfolio in US stocks. I have never followed this, although I have tried dipping into the US market, but I have never made any money there. I bought some of this stock in June 2005 and realized a year later, in June of 2006 that it was going nowhere for me and sold. I lost almost 17% of my investment. When I bought in 2005, all the analysts were saying that it was a good buy at that time.

If we strictly look at this stock in US dollars, it does not look like a bad stock. In the following paragraphs, I will review my spreadsheet. The figures are not bad. However, from a Canadian point of view, would I have made money on this stock? The thing that I love about spreadsheets, is the “What if” questions you can ask. I have highlighted where I look at this stock from a Canadian perspective. If I held this stock for a 5 year period ending in 2002, including dividends, I would have made a return of 14%. However, this is the only good 5 year period for a Canadian. 5 year returns to 2003 would be 2%, to 2004 would be 4%, to 2005 -1%, to 2006 and 2007 would be almost -3, to 2008 would be almost 5% and if the end of 2009 was at current price, the return would be almost -2%.

Now turning to values in US$, I do not think this stock has done all that bad. All my following figures are for the year ending at the last annual statement of December 2007, the last annual report. The revenue growth for the last 5 and 10 years was just over 10% per year. The 5 and 10 years growth for Earnings per Share (EPS) was 11% and 12% per year. The dividend growth for the last 5 and 6 years was 15% and 14% per year. The Cash Flow growth for the last 5 and 10 years was 12% and 12% per year. The book value growth for the last 5 and 10 years was 13% and 12% per year. The closing price growth for the last 5 and 10 years was 7% and 9% per year. These last figures are not great, but not that bad.

The other good things about this stock is that the Liquidity (Current Asset/Current Liability Ratio) is 1.51 and this is lower than the 5 year average of 1.77, but it is still respectable and the Asset/Liability is at 2.15, which is also lower than the five year average of 2.40, but also respectable. Also, the Return on Equity (ROE) is good, as it was 24% for 2007 and this stock has a 5 year average rate of 27%. Tomorrow, I will look to see what the analyst say about this stock.

Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional. Its web site is See my spreadsheet on this company at

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets on my web site.

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