The success of trading stocks online or conventionally depends a lot on spotting goldmines of precious stocks. And some of those stocks need to be bought and kept with you rather than being sold in the hope of the company generating higher profits within a time period, particularly if you are a buy-and-hold investor. Johnson & Johnson fits that categorization. This is probably a great time to buy Johnson & Johnson stocks and then hold on to them for sometime.
Consistently higher earnings are what buy-and-hold investors look for. Though there isn’t any business that wouldn’t have its periods when it experiences weak results, the right kind of stock for these buy-and-hold investors would be one which carries a significant possibility of generating higher profits ten years from now. This would be in spite of whatever economic conditions occur in the intervening period. Analysts believe Johnson & Johnson (NYSE: JNJ) fits the bill perfectly.
Various factors make them think that way. To begin with, let’s look at the usual factors that are discussed with regard to a stock – situation of the industry to which the stock belongs, history of the stock’s performance and the dividends on offer.
Industry, Growth Rate and Dividends
The healthcare industry to which the company belongs is worth $6 trillion and has long-term growth trends that are positive since there is an aging population everywhere including the developed nations. There is also a rising middle class in developing countries and emerging markets. If anything, this industry is only set to expand further and Johnson & Johnson, being the market leader, could keep capturing more and more gains in the future.
Looking at its history, JNJ stock has had a compound annual growth rate of 11% since 1985, even without including dividend payments. This has made it quite a great long-term buy. And it’s always been in the pioneering end of things, ever since it launched baby powder in the late 1800s. And its innovations have been widely accepted.
Its dividends have been some of the best in the market. Johnson & Johnson has boosted its dividend payment for 54 straight years. In the last decade, the company’s payout has increased at a 9% compound annual growth rate. Since the company’s payout ratio amounts to only 50% of its earnings, it has a lot of room for greater gains as well.
Strong Profit Margin and Balance Sheet
Here’s something that’s very important when it comes to assessing the health of a company – the profit margin. Johnson & Johnson has a 70% gross profit margin which makes it the Dow’s fourth most profitable business. Last year, its $70 billion revenue was converted to $15 billion of earnings. That means it converts $0.22 of each dollar from sales into profit.
That’s significant when you compare the figures of other Dow majors such as 3M (NYSE:MMM) at $0.16 and Procter & Gamble (NYSE: PG) at $0.13. JNJ also has a very strong balance sheet, with $38 billion in terms of cash and securities and long-term debt of less than $13 billion. All these are made more attractive when you realize that its valuation is pretty reasonable, at 22 times trailing earnings, which is slightly lower than 3M at 23 and P&G at 27.
Diverse Revenue Streams and Geographic Diversification
Moving to matters involving business strategy, JNJ has multiple profit streams now, so when you buy a Johnson & Johnson share you don’t just buy a part of the single business. It is more like a conglomeration of multiple global health companies. This includes the world’s sixth largest seller of consumer health products, the sixth largest biotech company and the fifth-largest pharmaceutical business, and a medical-device manufacturer whose annual sales amount to more than $25 billion.
There is also the geographic diversification, with JNJ splitting its business evenly between the US and the international markets. Operating in 60 countries, its products are sold globally in every market in the world. That says a lot about the reach of the company.
Stock market experts would consider Johnson & Johnson as the right stock to buy and hold on account of the many favorable points we discussed above. Get more such insight and the technology to trade faster and more effectively with TradeZero. Call us at +1 954-944-3885 or email us at email@example.com.
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