Stable Growth Makes Johnson & Johnson Attractive
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Johnson & Johnson (NYSE: JNJ) is one of the most well renowned manufacturers of pharmaceutical products and medical equipment in the world. The company’s operations are comprehensively spread across six continents and it caters to a global clientele with its diversified portfolio of products and services. Johnson & Johnson has aggressive pursued its plans of acquiring a greater share of the global market by devising smart strategies that have helped it to in narrow down the business’ strategic focus to its core operations. A series of recent acquisitions plans, strategic alliances and smart investment and divestment initiatives have allowed the company to widen its competitive moat in the global market. These important moves promise a positive future outlook for the company, and have earned it favorable investor sentiment as well as a place in the Top 10 Pharmaceutical Stocks.
Earlier this year, investors placed a lot of hope in the stock as Johnson & Johnson sought an approval from the FDA to market its lung clot treatment on a larger scale. Recent reports suggest that the pharmaceutical giant is on the verge of getting the approval which would allow it to implement its plan. This positive development has encouraged aggressive trading in the market which has largely been the result of favorable investor sentiment over a predominantly optimistic financial outlook.
In addition, Johnson & Johnson has recently announced a series of overseas acquisitions that are expected to strengthen its presence in international markets. The recent acquisition of Guangzhou Bioseal Biotechnology is only one of the many acquisition plans that the company is expected to implement in the near future. Being Johnson & Johnson’s first acquisition in the medical device industry, this move reiterates the company’s initiative to aggressively target emerging Asian markets like China. Apart from helping the company to earn higher revenues, these acquisitions are also going to widen its competitive moat considerably.
Among other positive developments is the company’s recent announcement to hike dividends by 7%; a move that had earned it a place among the Top 5 High-Yield Healthcare Stocks. This move only adds to Johnson & Johnson’s long tradition of maintaining a healthy dividend history with a yield of 3.8%. It pays its shareholders an impressive $0.61 in dividends on earnings per share of $3.64. Moreover, price to earnings ratio of 17.65 is also very impressive when judged by industry standards. All these recent positive developments have earned the stock a AAA/F1+ rating by Fitch Ratings and the stock has attracted a lot of favorable sentiment among existing shareholders and potential investors as a result.
Even in terms of capital and overall global market share, the company remains as strong as ever. Johnson & Johnson has a total market capitalization of almost $179 billion with an average trading volume exceeding 10 million. Seeing how well the stock has performed recently and looking at its impressive financial indicators, I strongly believe that the stock is poised for aggressive growth and higher revenues.
There was a time when GlaxoSmithKline (NYSE: GSK) was popular among investors as the strongest pharmaceutical stock. However, the tables seem to have turned in the post-recession economic scenario as Johnson & Johnson has outshined its peer with a more promising financial outlook. More recently, Glaxo faces tough competition in its bid to acquire its long-standing development partner Human Genome Sciences after the latter rejected an offer of $13 a share as too puny.
The possible failure of Glaxo’s efforts to acquire Human Genome Sciences could greatly undermine the stocks financial prospects for the future, resulting in a significant loss in potential revenues and weak investor sentiment. On a positive note, among the developments that are expected to help the company in its financial performance are proposed plans to divest various non-core assets such as the OTC Brand to Aspen Pharma. Moreover, Lactacyd, Abtei, Solpadeine, Zantac, Nytol and Beconase are some other brands that the business plans to divest by the end of the second fiscal quarter of the current financial year. Glaxo expects these divestment initiatives to generate around GBP 185 million in revenues.
Novartis AG (NYSE: NVS), a large multinational corporation with global operations, is another renowned manufacturer of pharmaceutical products and medical products today. The stock has reported a significant increase in sales and earnings, which is largely owing to a positive economic outlook in recent months. Analysts rate this high-yield stock as the safest investment option in the pharmaceutical industry as it promises steady returns on investments with an impressive yield of 4.7% which comfortably exceeds industry standards.
Part of the stock’s impressive run in recent fiscal quarters has been driven by a renewed initiative to narrow down global operations by cutting down on non-core operations. This ‘shorter tail, bigger bite’ approach has worked well for the stock as it has considerably widened its competitive moat by diversifying its product and services portfolio. However, Johnson & Johnson still has an edge over Novartis since it has driven its operations and growth plans in a more clinical manner than its competitors.
Pfizer (NYSE: PFE) is another leading competitor to Johnson & Johnson. However, the stock has recently indicated a substantial cut in its estimate of earnings and revenue for the current financial year. Investors have eyed this dramatic cut in revenue projections as a strong indication that the stock is facing increasing difficulty in tackling mounting challenges. Some analysts see the significant cut-down as the aftermath of disappointing results in Pfizer’s Phase 3 trial of its blockbuster Lyrica drug.
The disappointing results are only the second in a series of failed tests after a similar report ended a similar trial for patients with HIV neuropathy. To add to the stock’s woes, Pfizer continues to struggle in the aftermath of the recent economic recession, especially in European markets. As a result, future prospects for the stock look bleak when compared with other major players in the pharmaceutical industry.
Johnson & Johnson is certainly a better and safer investment option when compared with other major competitors operating in the industry. The stock continues to show an impressive performance and investor sentiment is at an all-time high. Looking at the recent financial indicators of the stock, I strongly believe that the stock is poised for higher growth in the current financial year.
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