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Although I believe that Johnson & Johnson is one the best managed companies in the nation, there are several issues that I believe make them less desirable than other potential investments.

Let's take a look at the income statement as broken down by segments...37% of sales are in professional products, 35% in pharmaceuticals, and 28% in consumer products. While the pharmaceutical segment is undoubtedly one of the strongest in its industry, the consumer products business is weak because of its placement in an industry with declining fundamentals while professional products seems to be going nowhere. The result is a company where approximately 56% of earnings are from just 35% of sales and is responsible for the majority of the company's growth going forward. The result is that the earnings growth you get from pharmaceuticals is dragged down by J&J's other businesses.

Here I would like to take the time to emphasize another point: despite many people's raves about the strength of J&J because of their well-known consumer brands (Tylenol, Band-aid, etc.), a franchise in consumer markets is increasingly hardly a guarantee of success. Overall, J&J's consumer products are only running a 8.6% operating margin -- and that appears to be for a good year. In 1996, the segment's operating margin was 5.7% and 5.1% in 1995. Any claim that this is a meaningful trend of improvement would need to be backed up by considerable research. In 1994 and 1993 operating margins were 8.4% and 10.8%, respectively. I think that J&J could do better.

To conclude, like Tom, I'm preferential to Schering-Plough.

-Brent-
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