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Is Johnson & Johnson Stock A Buy Now

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

To help you figure out how to protect your retirement portfolio in these uncertain times, today I want to answer – Is Johnson & Johnson Stock A Buy Now?

Johnson & Johnson (JNJ) is the world’s largest healthcare firm.

It has three major divisions: pharmaceutical, medical devices, and diagnostics.

And you and I use it products every day.

  • Tylenol
  • Neutrogena
  • Listerine
  • Band Aid
  • Motrin
  • Zyrtec
  • Benadryl
  • And many more

Johnson and Johnson is so powerful that as of this writing its now the 12th largest company in the world by market cap.

It’s so powerful that it not only withstood the Covid pandemic well… While most companies flailed.

It increased revenues, profits, and cash flows because of the many necessary products it produces.

Because of this, its stock is up 46.4% from its 2020 low on March 23rd to today.

But this is all in the past.

Today, I want to help you figure out whether you should buy it or not for your retirement portfolio now.

It’s based in New Brunswick New Jersey.  It has a $432.42 billion market cap. And it pays you a massive 2.6% dividend. Which is reason #1 to consider buying its stock.

Johnson & Johnson’s 2.6% Dividend

Over the last decade Johnson’s paid out a total of $30.69 per share in dividends.

At today’s share count of 2.671 billion shares that’s equal to $81.97 billion paid out to shareholders in that time.

It also grew its dividend 76.9% from $2.25 per share in 2011 to $3.98 per share now.

These dividend payments will help you in normal times earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

These regular payments will help you earn more money for your retirement.  And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns massive profits.  Which is reason #2 to consider buying Exxon for your retirement portfolio.

Johnson & Johnson Earns Massive Profits

Over the last decade it earned an average operating income margin of 26.1% per year.

I look for anything above 10% so this isn’t great.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 21.4% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great operating business that is safe and ultra-valuable.

Johnson & Johnson farsurpasses both thresholds which means it’s a world class business operation.

Because of these huge profits and world class operations it also has low debt levels too…

Johnson & Johnson Has Low Debt

As of this writing JNJ has $24.62 billion in cash compared to $33.61 billion in debt.

As a percentage of its balance sheet total liabilities make up only 61.9%. 

Debt makes up only 7.8% of its market cap.

And its debt-to-equity ratio is an ultra-low 0.5.

These are all well below the minimum thresholds I look for when considering an investment.  And this makes owning JNJ stock incredibly safe right now.

So far, JNJ looks like a great stock to buy… But what about its valuation? Is it cheap enough to buy?

JNJ IS NOT Cheap…

With the markets at or near all-time highs you might expect a giant like Johnson & Johnson to be selling at an enormous valuation.

Unfortunately, it is.

As of this writing its P/E is 28.8.

Its P/CF is 18.5.

Its forward P/E is 17.1.

And its enterprise value to operating income – EV/EBIT is 26.1.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

These metrics combined show that JNJ is massively overvalued right now.

And this means owning its stock does not give you a large margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With Johnson & Johnson being overvalued right now, its stock does not offer you a large margin of safety.

This means you should avoid buying its stock right now even though otherwise its fantastic.

Conclusion

If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy to earn high and safe returns for your portfolio – Avoid Johnson & Johnson until its cheaper.  And consider investing in one of the stocks below.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

P.S. Breaking Poll – Are You Scared To Invest Right Now? Vote Here


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