In a bull market, it is easy to pick stocks and stay invested as shares of the majority of the listed companies move up on strong macroeconomic factors as well as positive sentiments. However, stock picking gets difficult in a bear market. A wrong choice can severely impact investors’ portfolio as had been the case at the time of the 2008 market crash.
We have been in a bull run since the crash, the longest one so far, taking the S&P 500 to its all-time high. However, investors are now becoming skeptical of the market's continuation as it nears the psychological level of 3000. Although the U.S. economy is growing as evident from robust GDP and rising interest rates, it is exposed to several negative factors like trade wars among major economies and rising crude oil prices. In this turmoil, several investors are wary of putting their money into stocks.
However, avoiding markets can be a lost opportunity in hindsight as we have seen on several occasions since 2009. While it is impossible to predict the onset of a bear market, it is possible to choose stocks with low risk and good long-term growth opportunity.
Johnson & Johnson (JNJ - Free Report) is one of the companies, which meets the criteria discussed below.
Good Rank and Solid VGM Score
J&J currently carries a Zacks Rank #2 (Buy) and has a favorable VGM Score of B. Back-tested results show that only stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
J&J also returns value to shareholders through buybacks and dividend payments. Dividend payouts have increased for 55 consecutive years. The company’s total shareholder return was more than 24% in 2017.
The stock has gained 5.7% in the past year.
Consistent Sales Growth
J&J is the biggest pharma company in terms of market-cap as well as sales and also boasts a well-diversified product portfolio comprising pharmaceuticals, medical devices and consumer products.
Pharma products generate nearly half of the company’s total revenues. Its sales grew at an impressive rate of 20% in the second quarter of 2018 compared with the year-ago period. The company has already raised its organic sales guidance for 2018 twice this year. The company expects sales at Consumer and Medical Device segments to improve in the second half.
The growth in Pharma segment sales was led by J&J’s oncology drugs including Imbruvica, Darzalex and Zytiga. Worldwide sales of J&J’s cancer drugs rose 42.2% in the second quarter. Moreover, along with established products, the new products also performed well. The new drugs launched in the past five years constitute almost a fifth of segment sales.
J&J also boasts a strong pipeline and has plans to launch 10 new products over the next three years with blockbuster potential. It is also targeting 50 line extensions of its approved drugs. These factors will help the company to fight competition from generics. The company is also boosting its rare drug pipeline through acquisitions and focusing on emerging markets for expansion.
The company is also developing treatments in collaboration with other pharma/biotech companies which include TESARO’s (TSRO - Free Report) Zejula. J&J is also developing its and AbbVie’s (ABBV - Free Report) Imbruvica in combination with Roche’s (RHHBY - Free Report) Rituxan to treat a rare form of Non-Hodgkin’s lymphoma.
As evident from the discussion, J&J has a lower risk profile than its pharmaceuticals peers. Its risk is also lower than several other similar sized companies from other sectors. Moreover, growth in dividend payout creates an increasing flow of income every year.
A sudden increase in competition for certain products due to the launch of an improved drug by a competitor may unfavorably impact margins over the short term. But a solid pipeline, exceptional growth of new drugs and a consistent dividend growth trend will boost the company’s value over the longer term in spite of market turmoil.
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Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
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