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Johnson & Johnson Recommended for Conservative Investors

On several occasions, Value Line’s Ian Gendler has highlighted Johnson & Johnson (JNJ). The New Jersey-headquartered corporation develops, manufactures, and sells a broad range of products in the healthcare field. It employs more than 126,000 individuals and has a market capitalization that exceeds $370 billion. Johnson & Johnson has been a component of the Dow Jones Industrial Average since 1997.

The company's third-quarter financial results were better than they appear. GAAP share earnings were $1.37 a share, versus last year's $1.53 figure, and our $1.70 estimate. However, on an adjusted basis, share net was $1.90, compared to the prior year's posting of $1.68. What's more, Johnson & Johnson managed to reverse a trend of reporting subpar top-line growth, as sales rose 3.8%. The Pharmaceutical division was the main reason for the solid results.

Responsible for about 50% of the company's total sales, its top line advanced 6.7%. With the $30 billion Actelion acquisition being included for the first time, the percentage climbs to 14.6%. New products contributed to the better-than-expected quarter, namely DARZALEX, which is used for patients suffering from multiple myeloma, a type of blood cancer.

Looking ahead, we expect the Pharmaceuticals business to continue turning around. The purchase of Actelion has been a game changer, and is now one of JNJ's top segments. In addition, the company's pipeline is quite strong. Not all of these drugs have to be blockbusters, but JNJ could surely use a few winners to offset some of the competition it is experiencing from generics and biosimilars.

As for the stock, it has been on a nice run of late. Part of the reason may be that investors are willing to pay more for blue-chip companies as the market indexes have reached new heights. All told, we continue to recommend JNJ for conservative investors.

Editor’s Note: Ian Gendler is Executive Director, Value Line Research, 485 Lexington Ave., Flr 9, New York, NY 10017. Value Line is the uncontested authority in reliable, unbiased information, Value Line puts you in the driver’s seat with accurate and insightful investment research on companies, industries, markets and economies. For more information on Value Line, visit www.valueline.com.


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