Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
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.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.