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Johnson & Johnson (JNJ) is a high dividend stock. With a dividend yield of 3.52%, it is popular among defensive investors who seek to protect themselves from inflation. Additionally, the company has more than 250 operating companies conducting business worldwide. Therefore, it is also a good choice for investors who want to have foreign market exposure. JNJ is very popular among hedge funds. Warren Buffett had $2.8 billion invested in JNJ. Ken Fisher, Ric Dillon, Bill Miller, Jean-Marie Eveillard and many other famous hedge fund managers were also bullish about the stock. We are going to take a closer look at Johnson and its comparable companies, including Abbott Laboratories (ABT), Covidien (COV), and Novartis AG (NVS) to determine which stocks promise higher returns for investors.
The company reported revenues of $16 billion for the third quarter of 2011. Second quarter operating income declined 19% to $3.7 billion. The company has $10.95 billion in net cash on its balance sheet. Its EPS is $4.90 during the past 12 months. Johnson is expected to earn $4.97 in 2011 and $5.24 in 2012. The stock recently traded at $64.78. Its current PE ratio is 15.77.
Johnson’s earnings are expected to grow at 6% over the next five years. This implies that its PE ratio using its 2014 earnings is around 11.00. Abbott’s expected growth rate is 8.11% and its corresponding PE ratio is 9.10. Covidien is expected to grow at 11.29% and its PE ratio using its 2014 earnings is around 8.70. Navartis is expected to grow by 5.45% over the next 5 years and its PE ratio using its 2014 earnings is around 8.78. Johnson looks overvalued compared to other stocks in the group. Covidien and Navartis seem to be trading at a discount as their PE ratios in 2014 are below 9.
Volatility is generally used as a measure of risk. Johnson’s beta is 0.62, Abbott’s beta is 0.31, Covidien’s beta is 0.90 and Navartis’ beta is 0.67. All these stocks are less risky than the market and Abbott is the most stable one. Johnson’s beta is the second lowest among the group, which means that investors bear relatively low risk purchasing JNJ.
3. Hedge Fund Ownership:
Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on the average. Johnson was the most popular stock among hedge funds at the end of second quarter. It was held by 57 hedge funds. Abbott was the second popular stock. 39 hedge funds were bullish about it. Ken Fisher, Ric Dillon, and Bill Miller were bullish about both JNJ and ABT. There are 33 hedge funds bullish about Covidien and 21 bullish about Navartis.
4. Insider Purchases:
Stocks purchased by insiders tend to outperform the market on the average. Johnson and Covidien both were purchased by one insider during the past six months. Other stocks do not have insider purchases during the same period.
Overall our analysis points out that Johnson & Johnson is a bit overvalued compared to other stocks in the group. However, other statistics of the stock beat its comparables. JNJ has low risk and is the most popular stock among hedge fund managers and corporate insiders, indicating some form of perceived value in the stock. We like Johnson & Johnson and we urge investors to do an in-depth analysis of the stock for their portfolios.