A Winning Long-Term Growth Pick

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Johnson & Johnson (NYSE: JNJ) is a strong, diversified pharmaceutical, medical device, and consumer products company.  It is a solid dividend payer and has shown good gains in recent months. This is the result of several factors that show Johnson & Johnson is ready for new highs. Johnson & Johnson's successful acquisition of Synthes is one huge future growth area for the company. There are new developments in its efforts to settle legal issues with its shareholders and the government. Moreover, the stock is doing well compared to its competitors in the industry. In this article, I will explain why you should consider buying Johnson & Johnson now and holding for the long-term.

Johnson & Johnson compares favorably against many of its competitors. Johnson & Johnson is seeing solid quarterly revenue growth of 6.5%, while Abbott Laboratories (NYSE: ABT), and Pfizer (NYSE: PFE) have seen declines of 0.4% and 15.9%, respectively. The company also shows stronger growth than Merck’s (NYSE: MRK) 1.3%.  Its book value per share also leads the way, sitting right at 21 compared to Abbott’s 17, Pfizer’s 11, and Merck’s 18.  Abbott has lost patent protection of its drug Tricor which produced revenue of almost $2 billion for the company in 2011.  Pfizer has lost its protection for its best-selling drug Lipitor and will soon lose its protection for Viagra.  And Merck has seen its stock tumble in the wake of losing protection for its top drug Singulair in August.  Johnson & Johnson is not having to deal with the loss of a major drug’s protection and does not appear to be in danger of losing protection in the near future.  Loss of protection can really hurt a drug company, especially losing protection on a top seller, like many of Johnson & Johnson’s competitors.

Johnson & Johnson is also pushing a few drugs through its pipeline that look very good going into the future.  Canagliflozin is a diabetes drug and bedaquiline is a treatment for tuberculosis.  Both drugs are awaiting approval from the FDA.  Zytiga, a prostate cancer drug, continues to hold promise as the drug has received a priority review status for larger use. This means the drug could be approved in about six months. The FDA usually grants this status for drugs that either show strong efficacy in treatment or where no treatment exists currently.  Having a strong pipeline like Johnson & Johnson has is the lifeblood of a pharmaceutical company.  Even assuming only one of these drugs wins approval the benefits to the company will be huge.

The recent acquisition of Synthes is a huge growth opportunity for Johnson & Johnson.  The medical device market represents a tremendous growth market and Johnson & Johnson has positioned itself to capitalize on this.  Synthes’ product portfolio consists of five primary product groups in trauma, spine, knee, bio-materials and power tools. The acquisition has brought a wide portfolio of medical devices for orthopedics market and now the combined JNJ/Synthes orthopedic division is one of the broadest orthopedic groups in the world. I believe the Synthes acquisition will positively affect the company’s efforts to tap growth opportunities in the orthopedics market. Further, it also brings the Synthes’ vast exposure to fast growing emerging countries including China, India and Russia.

The diversification of Johnson & Johnson is a very important component in evaluating the company. While pharmaceutical companies can be devastated by a loss of patent protection, and medical device companies can lose tremendous momentum and assets because of a recall, and consumer products can see slow growth and decline in down economic times, having all three under one umbrella can shield a company when any one happens.  While the medical device market looks to occupy the largest part of the company’s strategic assets, the company has much invested in pharmaceuticals and consumer products.

Johnson & Johnson is one of the world’s more diversified companies. It has a strong market presence in pharmaceuticals, medical devices, and consumer products. It has long been one of the better dividend paying stocks in the market and that trend does not look to turn anytime soon.  The company offers a very good opportunity for long-term investment, as I believe it is currently undervalued.  In economic downturns it has the ability to still provide cash for future development and growth.  Its diversification, both market wise and geographically with its acquisition of Synthes, adds tremendous stability.  Unlike its competitors it is not dependent on one industry or one region and the dangers associated with it.

As the company begins to see results from its acquisition of Synthes it will be in great shape to profit in the near term. As its strong pipeline of drugs begins to see FDA approval the stock will gain even more value.  The stock is currently trading at under $70.  I expect to see the stock show solid consistent growth going into 2013 and beyond as it begins to pick up momentum from the Synthes acquisition, blowing past its year high of just under $73 by the end of winter.  If the company receives more positive news about any of its drugs in the pipeline then the company could see a real spurt of growth. Regardless, the company represents a good value opportunity to buy and hold long-term. Johnson & Johnson is one of the most dependable stocks on the market today.












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