This stock is NOT a flashy "get rich quick" opportunity. It's a healthy blue chip dividend grower currently trading at an increasingly attractive price relative to its value. If you like to generate income and build wealth the old fashioned way, consider adding these shares now.
Johnson & Johnson (JNJ) is On Sale...
Attractive blue chip healthcare company Johnson & Johnson is currently on sale. Before getting into the details, here is a look at the recent price action and dividend.
If you are not aware, Johnson & Johnson is a leader in healthcare, generating a diverse revenue base with a wide economic moat.
For reference, JNJ's drug division focuses on the following therapeutic areas: immunology, oncology, neurology, pulmonary, cardiology, and metabolic diseases. The device segment focuses on orthopedics, surgery tools, vision care, and a few smaller areas. The last segment of consumer focuses on baby care, beauty, oral care, over-the-counter drugs, and women’s health. Geographically, close to half of total revenue is generated within the United States.
And according to a recent Morningstar report:
We believe Johnson & Johnson carries one of the widest moats in the healthcare sector, supported by intellectual property in the drug group, switching costs in the device segment, and strong brand power from the consumer group. The company's diverse revenue base, strong pipeline, and robust cash flow generation create a very wide economic moat. An extensive salesforce makes J&J a powerful candidate for a smaller biotechnology company looking to partner on a new drug, which strengthens Johnson & Johnson's ability to bring new products to market.
From a valuation standpoint, Johnson & Johnson is also attractive. For example, the shares of this blue chip healthcare juggernaut have gotten cheap on forward price-to-earnings ratio basis:
For perspective, a recent Guggenheim report explained: "We believe JNJ should trade between 17 and 20 times forward earnings based on the historical multiples of the company’s earnings." Again, this suggests the shares are cheap.
Similarly, the shares are inexpensive relative to the amount of free cash flow the company generates:
Free cash flow is used, among other things, to support and grow the dividend. And J&J has a tremendous track record of dividend growth, as shown in this next chart:
Also, we believe the management of large cap blue chip's like J&J send a message by the levels they let the dividend yield rise and fall to. And in the case of J&J, the rising dividend yield (as shown in this next chart) is a signal that management believes the share price should be higher, in our view.
Wall Street Analysts:
Further still, Wall Street analyst also believe the share price should go significantly higher as shown in this next chart which includes the aggregate J&J price target from 25 analysts (they think the shares should soon rise to more than $143, thereby giving the share price just over 20% upside.
JNJ's low beta (as shown in the following chart) is also an important characteristic of the company.
Considering the average beta is one, JNJ's diverse healthcare segments help insulate the company from downturns in the economy, thereby creating a defensive opportunity (with a healthy growing dividend, to boot).
Disciplined long-term investing is a proven strategy for success. Johnson & Johnson is a healthy blue chip dividend grower that is currently trading at an attractive price relative to its value. Investors have been inappropriately shunning the shares in favor of the flashier highly-volatile growth stocks that have been dominating the market over the last year. It goes against the grain to be a contrarian investor, but it also often pays off handsomely. We currently own shares of Johnson & Johnson in our Blue Harbinger Income Equity portfolio. You can view all of our current holdings here.