Key Reasons why Johnson & Johnson is the Place to Be

Muhammad 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), a big player in the drug manufacturing industry, is all too synonymous with the renowned Johnson’s baby powder. This titan is cuddled on a gigantic $178.7 billion market cap and arguably assumes the role of niche market leader in its space. It eclipses smaller competitors like Covidien (NYSE: COV) which happens to extend a 'paltry' $26 billion. Pfizer (NYSE: PFE) is one of the few competitors that exert considerable pressure on Johnson and Johnson. The two rivals are placed within the same financial territory; Pfizer's $172 billion market cap is a mere step behind Johnson’s $178 billion. If this industry were a horse race, the race would boil down to a fierce face off between J&J and Pfizer; other racers like Novartis (NYSE: NVS) would hang on to their superiors. All the same, the whole industry is at the climax of a huge crunch. This is clearly evident in the negative quarterly revenue growth figures exhibited by key players. Johnson has a quarterly revenue growth of -0.2% while Pfizer trails with its deplorable -3.5%. Ironically, a presumably weaker Covidien has its head above the water and is one of the few players in the industry that extends a positive quarterly revenue growth figure; 5.2% by my measure.

As per now, the drug manufacturing industry is not in its best of forms. I am therefore compelled to retreat to a secure cocoon. I need to make an investment that promises security above everything else. In my line of thought, J&J extends this deal. It consolidates security with the assurance of positive results. Its overshadowing $10 billion net income also gives it the much needed cushioning.

Alex Gorsky, the new chief executive officer over at J&J, has kick started his career with an audacious move. The CEO plans to ramp up the medical device unit through landmark acquisitions. These acquisitions are supposedly aimed at mounting Johnson’s flag in the front yard of high profile players like St Jude Medical Inc and Edwards Lifesciences. This fearless move by a CEO who has barely worked for a month in that position is deemed by many as tactful and witty. In person, I am inclined to share the same standpoint. This move may salvage Johnson’s dwindling cardiovascular sales (which apparently have been on an invariable freefall over the past preceding five years). Over at Edwards, management is reluctant to shed light on the matter and argues that it cannot comment on rumors and speculation. Johnson similarly declines to give a conclusive response to the matter. Amid the uncertainty that besets the anticipated acquisitions, one thing remains certain- J&J is planning something big, something that will rattle the industry. This is partly revealed by Alex’s renewed energy and enthusiasm. In his entrance into Johnson, which apparently dates back to a week ago, he said that Johnson would grow while rivals shrink. Such huge expectations involuntary create an appetite for investment and I foresee a huge leap in demand for J&J shares. Investors will want a piece of the cake.

In the stock market, the success of one stock is greatly anchored on the failure of a competitor stock. Pfizer’s recent stumbles may offset an increased demand for Johnson's shares. A section of investors rally a bearish outlook towards Pfizer. They argue that the estimable stock has since fallen short of glory. Pfizer is commonly portrayed as an overbought stock; a hot slap in the face if I may add. Typically, when a stock drifts in overbought territory, share holders are urged to hold. This is however hypothetical as most investors feel burdened with risks and choose to sell and look for greener pastures. The long run effect is that a stock will retreat into a ‘comfort zone’ and progress will be greatly weighed down. In the event that such a foresight see’s the light of day, Pfizer will not only lose out on share value but worse yet experience eroded confidence levels in share holders. If this were to happen, many shareholders would look for entry points into stocks like Johnsons.

Although Johnson has been the subject of unending adversity, its endurance cannot be overlooked. It has managed to suffocate critic outlooks and still continues to soar high. I strongly advocate for Johnson not merely because it exhibits exceptional financial dynamics but chiefly because it is resilient and futuristic.


muhammadbazil has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Covidien Ltd., Johnson & Johnson, Novartis, and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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