I like to read the history of markets, including bull and bear markets and recessions. And a quick glance at history shows that Johnson & Johnson has been one of the top performers in each business cycle. Therefore, I expect management to continue the tradition and find ways for the company to increase profits in the long term.
Investors should consider any short-term weakness in the JNJ share price as an opportunity to buy the shares.
Johnson & Johnson works on vaccine development
According to a February 2020 research project led by Junxiong Pang of the National University of Singapore and published in the Journal of Clinical Medicine, “Rapid diagnostics, vaccines and therapies are important interventions for the management of the new coronavirus outbreak in 2019 (2019-nCoV)… With the emergence of 2019-nCoV, there are approximately 15 potential vaccine candidates in the pipeline around the world. ” This recent study mentioned a new JNJ vaccine currently in the preclinical stage.
Then, on March 30, Johnson & Johnson announced that it had identified a primary COVID-19 vaccine candidate that had shown promise in preclinical trials. And by September 2020, the group plans to start phase I clinical studies in humans. In addition, it has decided to increase its vaccine production capacity in the event that the potential vaccine is approved in an emergency by the United States Food and Drug Administration (FDA).
This is a welcome development not only for investors in JNJ stocks, but also for millions, even billions, of people around the world. However, it is important to remember that many experts do not expect a vaccine to be ready for human use in less than a year.
Therefore, we will not know the potential effect of an effective JNJ vaccine on the benefits of society until clarity has been established.
What to expect from first quarter revenues
In addition to the recent press release on vaccine development on March 27, JNJ management also issued a “business continuity statement”. Although the group recognized that the company was facing a dynamic situation, it nevertheless remained in good shape to bypass various supply chains as well as the logistical problems that could arise.
It operates in three segments:
- Pharmaceutical (where he does not see supply interruptions);
- Medical equipement (where it does not experience any major interruptions in the supply of products); and
- Consumer (it is experiencing increased consumer demand for certain products and markets).
The street will take a close look at these three segments when the company releases its first quarter results on April 14.
The company released its fourth quarter results in January, exceeding analysts’ earnings estimates. But the revenues came in short. Quarterly sales reached $ 20.39 billion, an increase of 1.77% year-over-year. Adjusted EPS was $ 1.97, but decreased 4.57% year-over-year.
The three combined segments of the Medical Titan provide JNJ with predictable cash flow and solid pricing power. Over the past year, it has generated nearly $ 20 billion in free cash flow, a very respectable figure.
About 50% of the company’s revenues come from the United States. However, its activities abroad, and its activities in emerging markets in particular, are also important growth catalysts for JNJ shares. Therefore, especially given the global impact of the COVID-19 pandemic, investors are likely to pay attention to its overseas figures in the first quarter results.
JNJ stocks tend to be volatile around the results release dates. Current shareholders can expect instability in the coming weeks.
The forward price / earnings ratio of the JNJ share is around 14.8. While not too rich for a solid company like Johnson & Johnson, if its first quarter results don’t meet expectations, many investors may decide to sit on the sidelines for a while.
JNJ share could remain volatile for April
Most analysts would agree that the bull market we had from 2009 to early 2020 is now over. The street is now debating whether we will have a V-shaped or U-shaped recovery. It may be too early to say what the economic and health effects of the new coronavirus pandemic will be.
Thus, the JNJ share could continue to be volatile in the coming weeks. Until we have more clarity on the state of the economy, larger markets will likely remain volatile.
Defensive companies, however, generally benefit from constant demand for their products or services and are generally not correlated with the rest of the business cycle. Healthcare companies are considered defensive and their stocks may perform well during a recession.
The 52-week range of the JNJ share goes from $ 109.16 (March 23, 2020) to $ 154.50 (February 2, 2020). The price currently hovers around $ 137.
Are you an investor who also pays attention to the technical sheets? JNJ’s short-term charts paint a mixed picture, suggesting that it is likely to trade in a range. While long-term investors would like to see the stock go and stay above $ 140, short-term traders should hold stocks between $ 140 and $ 120, a level where the stock has long-term support.
I would consider buying the shares if they fall near or even below $ 130 then $ 120.
The Bottom Line on JNJ Stock
Johnson & Johnson is helping our country and the rest of the world win the battle against the COVID-19 epidemic. While it may not be the first or only pharmaceutical company to develop a cure for the pandemic, it also has a broad-based business model with global reach.
The diversification of the company means that JNJ stocks are less sensitive to economic cycles than market competitors. Whatever the economy, consumers will buy products from several of its strong brands and Johnson & Johnson will likely retain market share in many areas.
Investors who now buy the shares will also benefit from a 2.7% dividend yield. The conglomerate has increased its dividend each year for more than half a century.
If you still want to be exposed to JNJ stocks, but don’t want the total volatility that can go with it, you might consider investing in an exchange traded fund (ETF) instead. Examples of such an ETF would include IShares Dow Jones U.S. Pharmaceutical Index (NYSEARCA:IHE), the SPDR fund for the select health sector (NYSEARCA:XLV), or the Vanguard Health Care ETF (NYSEARCA:VHT).
Tezcan Gecgil has worked in investment management for more than two decades in the United States and the United Kingdom. In addition to formal higher education in the field, it at also completed the 3 levels of the Certified Market Technician (CMT) exam. His passion is for options trading based on the technical analysis of fundamentally solid companies. She particularly likes setting up weekly covered calls to generate income. At the time of writing, Tezcan Gecgil had no positions in any of the above titles.