Berko: Be patient: Johnson & Johnson is A-OK
By Malcolm Berko Taking Stock April 4, 2013 8:50PM
Updated: May 6, 2013 3:55PM
Dear Mr. Berko: In April 2005, I bought 140 shares of Johnson & Johnson at $72 (including commission). It’s now $80; in the past eight years, it’s gained only 8 points. I guess I should be glad I don’t have a loss. The company’s revenues, earnings and dividends (everything you consider important) have increased every year, so that 8-point, or 11 percent, increase is disappointing. My other stocks have done much better, and they don’t have Johnson & Johnson’s great long-term record. Should I continue to hold my shares, or should I sell them? Do you still like the stock?
LR, Jonesboro, Ark.
Dear LR: JNJ, with its Triple-A credit rating, is a revered leader in the health care industry. It generates enormous free cash flow (the difference between operating cash flow and capital expenditures) and has a hugely diverse revenue base, a prolific research pipeline and a nearly unbridgeable economic moat. And except for Coca-Cola and Nike, few companies can match JNJ’s product acceptance, its esteemed reputation and its 40-plus years of consecutive revenue, earnings and dividend growth.
Why would a company with such impressive revenue, earnings and dividends (and expecting similar growth in the foreseeable future) perform so languidly? Some suggest that product recalls in JNJ’s over-the-counter business (Motrin, Tylenol, Aveeno, etc.) damaged JNJ’s impeccable brand image.
Don’t sell your JNJ. However, if you do sell JNJ, I can almost guarantee that about three months after you deposit the proceeds, those shares will run to $106 or higher and split 2-for-1 and the board of directors will raise the dividend by 25 percent. Please let me know when you sell the stock.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775.