Johnson and Johnson 2

Sound bite for Twitter and StockTwits is: Price seems relatively reasonable. I am choosing the historical median Dividend Yield test because this test as the best test as it is using current date rather than estimates or values from the last financial statements. See my spreadsheet on Johnson and Johnson.

I do not own this stock of Johnson and Johnson (NYSE-JNJ), but I used to. 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.

There is not much of insider ownership, but this is a very big company. The CEO has shares worth $11.8M, but this is a very small percentage of the outstanding shares. It is 0.004% of outstanding shares. The other thing is this company gives out a lot of options.

The increase in outstanding shares due to options was at 1.16% in 2014. From 2011 to 2013 the increase in outstanding shares due to options was 0.92%, 1.96% and 1.72% so 2014 was not an unusual year for the company’s options. For the companies that I follow, the median increase in outstanding shares was 0.22% and for 70% of the companies it was 0.50% or lower. I find stock options rather high.

I get 5 year low, median and high median Price/Earnings per Share Ratios of 15.20, 17.27 and 19.14. The corresponding 10 year ratios are close at 15.33, 17.22 and 18.82. The historical median P/E Ratio is 18.18. The current P/E Ratio is 18.20 based on a stock price of $102.48 and 2015 EPS estimate of $5.63. This stock price testing suggests that the stock price is relatively reasonable, but slightly above the relative median.

I get a Graham Price of $57.23. The 10 years low, median and high median Price/Graham Price Ratios are 1.41, 1.58 and 1.80. The current P/GP Ratio is 1.79 based on a stock price of $102.48. This stock price testing suggests that the stock price is relatively reasonable, but at the very top of a reasonableness range.

I get a 10 year Price/Book Value per Share Ratio of 3.71. The current P/B Ratio is 3.96 a value some 6.8% higher. This stock price testing suggests that the stock price is relatively reasonable, but slightly above the relative median. It is interesting that the historical median P/B Ratio is 5.27, which is quite a high value.

The 5 year median Dividend Yield is 3.43% and the current Dividend Yield is 2.93% a value some 14.6% lower. This stock price testing suggests that the stock price is relatively reasonable, but getting to the top of a reasonableness range.

The historical Dividend Yield is 2.14%. The current Dividend Yield at 2.93% is 38% lower. This stock price testing suggests that the stock price is relatively reasonable and below the relative median.

When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold and Underperform. Most of the recommendations are a Hold. The consensus would be a Buy Recommendation. The 12 month stock price is $108.13. This implies a total return of 8.44% with 2.93% from dividends and 5.51% from capital gains. This is based on a current stock price of $102.48.

This is the second of two parts. The first part was posted on Wednesday, November 25, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

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.

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