Johnson and Johnson 2

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

When I look at insider trading, I find some $5.9M of insider selling and no insider buying over the past 12 months. This many seem like a lot, but in relation to the market cap of this stock, it is extremely small. There is some insider ownership with the CEO owing stock worth around $7.2M and the CFO owing stock around $5.7M. Although here again in relationship to market cap, these are very small amounts.

The 5 year low, median and high median Price/Earnings per Share Ratios are 14.73, 17.27 and 18.79. The 10 year corresponding P/E Ratios are similar at 15.79, 17.36 and 18.82. The current P/E Ratio is 18.49 based on a stock price of $107.21 and 2014 earnings estimate of $5.80. This P/E is still within a reasonable range, but at the very top end.

This company also puts out an Adjusted EPS value. Analysts seem to pick up this Adj. EPS as a valid number. The 5 year low, median and high median P/E Ratios for this EPS value are lower at 12.52, 14.50 and 16.12. The 10 year values are similar at11.98, 12.93 and 14.03. The current P/E Ratio for Adj. EPS is 18.30 based on a stock price of $107.21 and 2014 earnings of $5.86. This stock price test suggests that the stock is expensive. Even if you look at 2015 earnings estimate, which is $6.12, the P/E is still too high at 17.52.

I get a Graham price of $56.59. The 10 year low, median and high median Price/Graham Price ratios are 1.44, 1.62 and 1.84. The current P/GP Ratio is 1.89 based on a stock price of $107.21. This stock price tests suggests that the stock price is expensive.

The 10 year Price/Book Value per Share Ratio is 3.88. The current P/B Ratio is 4.37 a value some 12.5% higher. The current P/B Ratio is based on a stock price of $107.21 and BVPS of $24.55. This stock price test suggests that the stock price is still within a reasonable range.

The 5 year dividend yield is 3.46%. The current dividend yield is 2.61%, a value some 25% lower. This is based on a dividend of $2.80 and a stock price of $107.21. This stock price tests suggests that the stock price is expensive. However, if you look at the historical average and median dividend yields, which are at 2.36% and 2.05%, you get a different story. These yields are 11% and 27% lower than the current dividend yield and suggest that the stock price is relatively lower than the historical average or median levels.

When I look at the analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. Most of the recommendations are a Hold, but the consensus would be a Buy recommendation. The 12 month stock price consensus is $108.00. This implies a total return of 3.35% with 2.61% from dividends and 0.74% from capital gains. (See my blog for information on analyst ratings .)

There is an interesting article in Business Insider about JNJ suing Boston Scientific for $5B. An recent article on Nasdaq talked about JNJ being the stock of the week. The Legacy site says that Jacks is giving JNJ a neutral rating and target price of $113.00. (Neutral rating is same as market perform or hold rating.)

Sound bit for Twitter and StockTwits is: Historical dividend yield says price is reasonable. On a lot of levels the stock price seems slightly expensive. However, on an historical dividend yield basis is coming out as reasonable. It is interesting that the consensus recommendation is a Buy, but the consensus stock price is not much above the current stock price. See my spreadsheet at jnj.htm.

This is the second of two parts. The first part was posted on Thursday, November 27, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price. I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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