Johnson and Johnson 2

I am putting up on my other blog my notes from the World Money Show 2013 in Toronto. I will put up these notes as I transcribe them here.

I do not own this stock Johnson and Johnson (NYSE:JNJ). 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.

When I look at insider trading on the NASDAQ site, I find 4 sells in the last 3 months totally $2.8M. This is rather negative. According to the most recent proxy notice, the current President had total rewards, including salary, bonus and options of $11.5M and the vice president of finance had total rewards including salary, bonus and options of $5.5M. I find it harder to find insider ownership for US companies than Canadian ones, but that may just because I know better where to look for Canadian information.

The Price/Earnings Ratios for this company has been going south. The 5 year low, median and high median P/E Ratios are 12.11, 13.90 and 15.69. The 10 year low, median and high median P/E Ratios are 16.32, 17.57 and 18.82. I get a current P/E Ratio of 23.58 based on a 2013 EPS of $3.96 and a stock price of $93.37. This is the only estimate for EPS I could find. If you use the 12 month EPS to September 2013 of $4.48, the P/E is better at 20.84 as the 12 month EPS is $4.48. This P/E is still higher than the 5 and 10 year median P/E Ratios of 13.90 and 17.97.

If you use the 10 year median P/E Ratios for Adjusted EPS compared to the Adjusted EPS for 2013, the current P/E ratios is 17.04 compared to the P/E Ratio median of 12.93. The 10 year high median P/E Ratio is 14.03. So however you look at P/E Ratios, the current ones seem to be relatively high.

I get a Graham Price of $4.03. The 10 year low, median and high median Price/Graham Price Ratios are 1.59, 1.71 and 1.88. The current P/GP Ratio is 2.17 based on the stock price of $93.37. This test also says that the stock price is current relatively high.

The 10 year Price/Book Value per Share is 4.16 and the current P/E at 4.49 is just 8% higher. This says that the stock is relatively reasonable.

The 5 year median dividend yield is 3.46% and the current dividend yield is some 18.3% lower at 2.83%. Generally, for the stock price is to be considered high in this test the current dividend yield has to be 20% lower than the 5 year median. It is close but not quite there.

The only stock test that gives a good view of the current stock price is looking at historical dividend yields. By this measure the stock price is cheap as the current dividend yield is below the midpoint of the historical high and low dividend yield. This historical average dividend yield is 2.35% and this is lower than the current dividend yield of 2.83%.

When I look at analysts' recommendations I find Strong Buy, Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month target stock price is $95.40. This would imply a total return of just 5%, with 2.83% from dividends and 2.17% from capital gains. (Makes you wonder about the buy recommendations with such a low 12 month consensus stock price.)

There is an interesting article in International Business Times about Johnson & Johnson And Its Subsidiaries having to Pay $2.2B Over Claims Of Fraudulent Marketing, and kickbacks relating To Heart Drugs and Antipsychotics drugs. There are a lot of sites talking about this.

There is a recent positive blog entry by Dividend Monk on this stock. He says that Johnson and Johnson is often viewed as the quintessential blue chip stock. He thinks that the current price is fair but not ideal. See my spreadsheet at hse.htm.

This is the second of two parts. The first part was posted on Wednesday, November 6, 2013 and is available here.

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 here Johnson and Johnson.

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 for stocks followed and investment notes. Follow me on Twitter or StockTwits.



This is the first of two parts. Second part will be posted on Thursday, November 7, 2013 and will be available here.