Putting Things in Perspective

Barron’s this weekend had a great article about JNJ. JNJ is one of our top 5 holdings. As the article says, this stock may not have been as “peppy” as the rest of the market, but there are several standouts about this high quality company:

1. Improvement in eps growth over the next few years.
2. Strong drug and medical device pipeline.
3. Solid balance sheet (low debt, strong cash flow)
4. 3.3% dividend yield.

Stock is trading below a market multiple because of past drug patent expirations, concerns over health care reform and sluggish results in consumer products. We agree with Barron’s that this is all about to turn around. Let’s not forget, next year we enter into several potential headwinds that could slow this market down (higher taxes, higher interest rates, lack of employment). You want to keep your portfolio diversified amongst different sectors.
Just to keep things in perspective, here’s a plug for the value of long-term investing. Below are the rates of return for JNJ versus the S&P 500 over several time periods.

2 years: JNJ -5% S&P -16%

10 years: JNJ +56% S&P -18%

20 years: JNJ +808% S&P +259%
Source: Baseline.

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