No. of Recommendations: 6
Have not seen a thread started on JNJ. Anyone covering this name? From a strict pricing standpoint the name is getting cheap (relative to historic CAGR avg.). Seems that there is a penalty being applied for missing the Guidant battle. However, looking at the JNJ board it seems that there is a collective sigh of relief and optimism over better places to apply free cash.

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I read that they will be getting 800 million for not getting the Guidant deal, originally i thought it was 600 million or so. Now i wish i would've bid on Guidant and not gotten it, i would've settled for half that.

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No. of Recommendations: 18
"Seems that there is a penalty being applied for missing the Guidant battle." - budfox100

JNJ is not your typical pharmaceutical business. It is much more like Abbott Labs. Both have some drugs that they sell, but the companies are much more diversified than a Merck or Pfizer. Both buy technology as often as the develop it themselves.

Back in 2000 there was a company named ALZA. ALZA had developed a new product that Abbott was interested in controlling. ABT made a run at ALZA and the share price went wild. Those of us who owned ABT were excited about the prospects. However, the deal fell through and ALZA stock plummetted. I bought some shares after the collapse.

Within a few weeks, the news came out that Johnson & Johnson was behind the failure of the deal and JNJ was the new acquirer of ALZA. The AZA shares soared and I was rewarded with JNJ shares at about $18/share even though JNJ shares were selling at $35/share. It was a gamble for me, but it worked out well and got me into JNJ.

The other day I was laughing at the news that ABT was behind the failure of the JNJ/Guidant deal. Turnabout is fair play! ABT wanted a part of the Guidant business that Boston Scientific was willing to sell. So, ABT stepped up and sweetened the deal and took JNJ out of the picture.

After the ABT/ALZA deal was screwed by JNJ, both ABT and JNJ stock went up at an impressive rate. That one deal did not make or break either business. But, JNJ has shown better strength over time. It is just now reaching it's low CAGR. ABT has been there for some time. Maybe the ALZA coup had something to do with that.

If that is the case, then ABT should be the beneficiary of future strength. However, I do not believe this has anything to do with anything. Both ABT and JNJ are fabulous companies and you would do well to own both. Both are at or very near their 30-year low CAGRs. I believ that both will be good stocks to own in the near future.

I sold most of my JNJ back at about $68/share to buy something else that was at it's low CAGR that I liked better. But, I have been getting very interested lately in buying more JNJ shares again. My goal is $55/share, but we may not get that low. However, if you own both ABT and JNJ, you get to really see the back stabbing and one-upsmanship at work between them. That alone is worth owning a few shares of each. I think they are both worth more than the present price.

I was recently buying ABT at $41/share and again when it spiked down to $39. It has rebounded to $43/share on the coup over JNJ, but that is of no real consequence. ABT is worth much more than $50/share in my estimation and JNJ is worth more than $70. The market just happens to disagree with me right now.
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Thanks BMW! Some other interesting points I have seen on the MSN Stock Scouter Rating Service are:

JNJ trades at 17x earnings
Drug Manufacturers group trades at 21.90x (not a perfect proxy)

If you value JNJ at the industries multiple you get a company that trades around $80. With a very strong balance sheet and consitant revenue growth history (not to mention a diversified product lineup) this looks like a good candidate to me as well.
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FWIW, I'm buying JNJ and BUD hand over fist. And now, thanks to this awesome board, I'm adding WWY to my watch list.
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This is a pretty old thread, but I wanted to resurrect it to find out if anyone is still watching JNJ. The stock is not quite at the low RMS that I'd like to see, but rather seems to have sustained a recovery towards its long-term CAGR since the first of the year:

(I'm focusing on the 16-year chart because it appears that the stock price has followed a fairly solid pattern of compound growth since 1990)

As a drug company (which, as BMW pointed out, is a description that misses the boat somewhat for JNJ), the company is exceptional in its ability to steadily bring new drugs to market.

J&J has a robust pipeline of new drugs. We expect the company to file up to 10 new drug approvals in 2007 alone.

As a retail consumer packaged goods company, J&J is dominant within the categories in which it plays:

Seventy percent of J&J's products control the number-one or -two position in their respective market categories.

As a value play, in addition to its being a strong BMW stock, the company is nearly unique as a large non-financial with a AAA rating. JNJ has increased its dividend every year for the past 44 years, and is well into execution of a $5B stock repurchase. EPS has increased annually since 98 (and is projected to increase this year versus 05, despite a decrease in stock price over the same period).

I'm looking to buy right now, and JNJ is high on my list. Is there a stronger contender today?

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No. of Recommendations: 5

I like JNJ too. I actually have a limit buy up for it but JNJ hasn't dipped that low since I put the order in :(. Looking at different time scales gives a VERY different perspective on correct avg CAGR.

From time to time I get eager to just buy the dang stock and get it over with, however, I'm trying to learn patience by watching other BMW'ers...

In essence when buying stocks, the stock must meet TWO criteria: 1) a good high quality company AND 2) a stock at a good price. It appears to me that you do not get great portfolio performance by merely buying stock in quality companies. You must also get that stock at a good price (witness DRL in which I've had nearly 50% growth in ~1.5 months).

If JNJ won't come down to my buy price, then I'll just have to wait for another quality stock that's offered at a bargain price. I suppose it's OK to keep some money in cash waiting for the right stock. Or perhaps I should just purchase a mutual fund with the money while I wait. Decisions decisions.

If it's any comfort, if you purchase it I'm sure that JNJ will do nicely. You just might not get the kind of returns that are possible with the BMW method. Of course you should not expect every pick to get hit out of the park!

Incidentally I realize that one of the great qualities of the BMW method is it helps us identify those buy opportunities. In a manner of speaking it allows us to make educated guesses about timing a stock price (often discouraged in beginners). Really were not "timing it" we just use a convenient yardstick to make some educated predictions.

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Hi John,

I bought JNJ a few months back at about $60.

In addition to some of the things you mentioned, I was thrilled with the OTC assets JNJ bought from Pfizer. Perhaps, they overpaid but there appears to have been some significant tax savings that resulted in a much lower after tax purchase price than meets the eye.

If you've done much DD, you are aware that JNJ lost a hard fought battle with Boston Scientific over Guidant. My take on the matter was that JNJ management played Boston Scientific management for fools (small "f") in that they got them to overpay for a very troubled company. I remember thinking at the time, what on earth does JNJ see in Guidant. Then comes BSX with there "superior" bid and JNJ simply walks away.

This week, the news was that JNJ is bringing a suit against BSX and Abbott Labs for some aledged no-no's during the dealings. This thread sums it up pretty good:

I particularly enjoyed the comment by elvistmf and MrAerodynamic. Funny, yet extremely accurate.

With the excellent management, a stong balance sheet, long dividend history (with increases), rock solid OTC business, plus pharma and medical products to boot and us Baby Boomers not getting any younger; JNJ is an excellent candidate for a permanent holding.

I've bought a sizeable position, and would add more if the price fell back to say $55 - a price I don't expect to see.

At today's prices you could do a lot worse. Buy the shares, you won't regret it.

But, you asked if there was a stronger contender out there. You won't find anything stronger.

3M comes close and is a good buy now too (MMM was recently added to the BMW portfolio). It's price got hammered down to about $70 after the last earnings report showed sales of its optical film (used on flat panel TV's and monitors) were down. It was a short term hiccup that created a buying opportunity. All reports so far indicate sales of flat panel TV's have picked up and this should improve 3M's earnings for the rest of the year.

That's just my $0.02


ps: I've forgotten what this thread said earlier, I hope I didn't bore everyone with a rehash of old news.
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Thanks, all. And Rich--I agree w/regards MMM, and already hold a position.

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"I'm looking to buy right now, and JNJ is high on my list. Is there a stronger contender today?" - John

Personally, I love JNJ and there is probably none better. I bought back in 2000 when the stock spiked down to $42/share. A disgruntled employee in Puerto Rico claimed he had all sorts of incriminating evidence of fraud. I did not believ it for a second, the story sounded very fishy.

It turned out he worked in the boiler house and had nothing but sour grapes, but the stock had collapsed on the news anyway. I sold most of my position when ot rebounded to around $70/share. I have been hoping to buy more at about $55/share but it never seems to get there. If I wait laon enough, it looks as if it may get back to the -2 RMS line and I will be interested again at $60/share.

Do you see how the share price is steadily following the -1.5 RMS CAGR line. I believe the stock price will continue on that line for some time. The earnings growth seems to be nmatching up with the price rise. But, who can complain about a 14% return plus a decnd dividend? It isn't going to give us a 20%+ CAGR, but it surely will beat the index averages. JNJ always has done that.

Another great similar stock is Abbott Labs (ABT). It has already jumped over 20% from the lows earlier this year.
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I'm the happy owner of JNJ stent since June 1997.

Denny Schlesinger
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Hi J, et al,

Sorry to be late to this party ... First note that while I lean more and more on the BMWm for my stock investing, I don't use it exclusively ... and so in terms of my longer terms deep value holdings, JNJ and MMM (and until a few months back CAT also) remain my largest and longest term holdings. I've been quite pleased with them and see no reason to incur the cap gains selling would entail - nice problem to have to face though <smile>.

And so in my own extremely unbiased furry opinion, you all seem to be chatting abotu some real long term winners <lupine smile>.

Good luck to us all, cause we're all in it together,
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No. of Recommendations: 8
I'm laid up with a cold today and revisiting several of my previous BMW purchases. Here's where I am on JNJ...

Having purchased JNJ at 65.13 in 10/2006, I haven't seen a lot of movement. Way back, BMW said the stock was worth more than 70. M* agrees, placing a value of $76. If we assume a baseline of Jan '77 (which I think is reasonable) that would return a CAGR of 14.12. This is very close to MKlein's 35-year CAGR of 14.9. Also, a 14.12 CAGR makes good sense of the data.

With its 2.29% yield, 17.45 P/E, and 14% 10-year earnings growth, a 14+% CAGR seems more than fair.

The only really scary scenario I can come up with is based on assuming that the stock is at the beginning of a very long-term cyclical downturn. If we consider the 5-year CAGRs for every 5-year period starting in 1972, we see a declining period followed by a steady 15-year period of increasing returns followed by a downturn. The stock lost about a fourth of its value from '75 to '80, and has only grown at 3.04 over the past 5 years. If this is indicative of a long-term business cycle, it's hard to see how the past 5 years could have been part of it, since earnings and dividends have steadily improved over the past 15 years. However, to go through the exercise of anticipating a doomsday scenario for the stock, if we are seeing the mature stages of a downward business cycle, we could expect as low as an 8.5% CAGR over the long haul. This would make sense, as it would link the stock to the overall economy.

Should this turn out to be the case, we would expect the share price to remain stagnant until 2019. However, even if we are in the throws of a negative cycle, it's just as likely that we would see the beginning of a recovery well before then. In other words, my worst case is extremely pessimistic given the fundamentals.

My best guess is that Mike is more or less correct with his CAGR, and that the stock should be at around 106.55 by 1/2010. For me, with dividend, that would be a 19.09 CAGR. If the stock shoots through "fair" price, which it has done repeatedly in the past, a much better return in less time might be possible. The last three runs lasted 5.5, 2, and 1.25 years respectively, and each exceeded the 15% CAGR line.

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