Three $100 stocks – Part 2 – JNJ

Last week I had posted Part 1 of the Three $100 stocks in which I looked at the numbers of Pepsi (PEP) a little closely. The second stock that I want to look at is Johnson & Johnson (JNJ). Like I mentioned in my previous post, the 3rd stock that I will talk about is Disney (DIS). I hold positions in all three stocks and hence have been following them quite closely. Each stock is in a different sector and different growth phase and also moving in different directions lately. I initiated positions in these companies in the recent past (within the last 6 months) and have been adding to these positions as part of my weekly purchases as and when price made sense.

Again, this is just my quick and dirty process to look at the numbers like Revenue, Income and EPS history and growth and looking at the P/Es and is no means a through analysis of all the data points and charts and numbers.

JNJ stock needs no introduction with respect to their business. They are one of the biggest company doing research and development, manufacturing and sale of products in the health care field. The stock was in low 90s in March 2014 and the stock in currently priced around $102. The stock did reach a 52-week high of $109+, but has since then retreated close to the $100 levels. The stock was trading in a tight range of $98 – $103 in the last one month – one of the reasons I added this stock as part of my weekly purchases during February. So the stock has dropped by about 5% from its high, but also trading just over 10% compared to its 52-week low. But is the stock fairly valued at this price?

  • The revenue increased from 50,514 Mil in 2005 to 74,331 Mil in 2014. This represents a CAGR of 4.32%
  • The net income increased from 10,411 Mil in 2005 to 16,323 Mil in 2014. This represents a CAGR of 5.12%
  • The EPS increased from 3.46 in 2004 to 5.70 in 2014 that represents a CAGR of 5.70%. The reduction in outstanding shares from 3009 Mil in 2004 to 2864 Mil in 2014 also helped boost the EPS.
  • The stock is currently trading at a P/E of 18.1. compared to its 5 year average of 17.5 which is pretty close.
  • Let’s assume the EPS growth to be a 5% for 2015 which is close to its 10 year growth rate. This will result in 2015 EPS to be 5.985. Applying the average P/E of 17.5 will result a price of $104.73. Applying the current P/E of 18.1 will result in a price of $108.32.
  • At the current price (~$102.00), the projected dividend yield is 2.74%.
  • Based on the current price and the recent trading range, it looks like 2015’s projected numbers have already been built into the price. Even at the high-end of the P/E for 2015, the upside on the stock looks to be just about 5% + dividends thus resulting in a total potential return of about 8%. I have been adding to the stock in the recent few weeks around the $100 range and definitely looking to add more around this range if possible.
  • Of course JNJ commands a bit of premium from dividend income investors for being a dividend champion with 52 years of dividend increases. Conservative investors are also attracted to JNJ because of its low beta of 0.55.
  • Morningstar currently has a 3 star rating on the stock with a fair value of $99.00.

What do you think about JNJ’s current price and valuation?

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6 thoughts on “Three $100 stocks – Part 2 – JNJ

  1. I like these series of $100 stocks…theres no question of the quality of the company and its a forever stock in any investors book. Although I think the valuation is a tad too high for me to buy here. If it falls under $95, I am buying.

    R2R

    • Thanks R2R. Glad that you like these posts. You are correct. The stock does look a bit expensive at the current levels and that’s why I am looking to add around $100. Your target price of $95 is definitely would provide more upside as well as lower risk and would love to add more if the stock reaches those levels.
      Thanks for your thoughts.

  2. Another great post – these are good, and a lot of this one is exactly why I bought JNJ at the beginning of last month when it dipped below $100 per share. Something I’ve wanted in the portfolio for a while, and I’m happy I’ve got a start to my position. I’d love to build it up several times over throughout the next few years.

    • Thanks W2R. Glad you like these posts. JNJ is definitely a long term stock and I didn’t hold for a long time. Like you, I am glad that I have a small position now and would like to build it slowly and steadily over the next few months/years.
      Thanks for stopping by.

  3. Hi DGJ,

    $100 definitely seems to be a magic number for JNJ in a lot of blogs. I’m interested in adding more JNJ this month too so thank you for the write up.

    Best wishes,
    -DL

    • Thanks DL. Yup. $100 seems to be a magic number for JNJ. Just a few years back, the stock was trading at 60s and 70s and now we are talking 100s. Hopefully in the next few years, the stock will be in up all the while rewarding us with dividends and dividend growth.
      Thanks for stopping by.

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