Johnson and Johnson: The Best Stock for Long Term Investors

As an investor, most of us want the triple bagger. We want a sizable return on our money and we take calculated risks to get there. But there is something to be learned from the tortoise and the hare fable. As great as a quick return is, sometimes, we need to invest in a slow and steady performer. In this case, that stock is Johnson and Johnson (NYSE: JNJ).

It’s not a sexy pick and it isn’t going to double your money by the end of the year. But if you want solid growth over the long term, then this stock should be in your portfolio.

Johnson and Johnson Background

J&J started back in 1886 by brothers Robert Wood Johnson, James Wood Johnson and Edward Mead Johnson when they created ready to use surgical dressings. Since then, Johnson and Johnson has expanded into various niches in the healthcare industry. Currently, they operate brands in each of the following segments:

Consumer Healthcare: offering baby care products, oral care products, beauty products and over the counter medicines among others.

Medical Devices: offering products in areas such as disposable contact lenses, diabetes care products, general surgery products, sterilization and disinfection products, orthopedic products and more.

Pharmaceuticals: offering products in the areas of infectious diseases and vaccines, oncology, immunology, neuroscience, and metabolic and cardiovascular diseases.

The J&J brand is so large, it encompasses many household name brands that many consumers are unaware of them being Johnson and Johnson. Here is a small preview of some of these name brands:

  • Tylenol
  • Listerine
  • Neutrogena
  • Aveeno
  • Benadryl
  • Zyrtec
  • Band-Aid
  • Neosporin
  • Acuvue

The Economics of Johnson and Johnson

For fiscal year 2016, J&J saw net earnings increase by 7.6% and adjusted diluted earnings per share grew by 8.5%. Breaking things down by segment, J&J saw an increase of sales by 6.5% in fiscal year 2016 in their pharmaceutical division, a sales decrease of 1.5% in their consumer goods division, and a decline of 0.1% in the medical devices division.

Even with this mixed bag of results, J&J remains upbeat on future growth, especially with the aging US population. For improving the consumer goods division, the company is looking to continue to grow internationally, specifically in Russia and Brazil while in the US, they will work on making their products that are market leaders gain a larger share of the pie.

For the pharmaceutical division, J&J has 10 products in its pipeline that they are developing and are hoping to gain FDA approval. They recently received positive news with the clinical trials of their psoriasis drug.

And with the medical device division, Johnson and Johnson is looking at growing this segment through various acquisitions.

Overall, the company is reinvesting in itself and continuously looks through its large portfolio of assets. They will divest an asset when it makes sense and they will acquire companies when it makes sense.

In 2015 they began a $10 billion share repurchase program and have raised their dividend for 54 straight years.

Why Johnson and Johnson Is A Good Investment

If you read some analysts thoughts on Johnson and Johnson, they will point to various ratios that claim the stock is overvalued. One such metric is that the stock price is 17 times forward earnings but the company is only growing its earnings per share at 5% annually.

While this metric is true, it is overlooking that J&J is going to keep growing at 5% annually. The company is no longer a growth stock. It is a large medical services company that with the various name-brands it owns, can continue to churn out revenue and pay a healthy dividend.

And that is why this stock is a great option for those looking for a solid, long term performer to hold in their portfolio. As stated at the beginning, you aren’t going to double your money by the end of the year when investing in this stock. But you are going to get growth in the stock price while collecting a healthy dividend along the way.

This is why so many dividend investors love the stock. They can set it and forget it. They are getting a great yield and not have to worry. They can focus their attention on other companies growing their dividends that might be flying under the radar.

So while the stock does look expensive, know that you are getting a long term performer that will stand the test of time.

This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.