NEW YORK (P3PWriter) – Johnson & Johnson (JNJ.N) shareholders have endured a painful 12 months amid worries about prospects for its many companies, however traders capitalizing on the inventory’s comparatively low-cost valuation could also be set to use a Band-Help to the declines.
Shares of J&J, the most important U.S. healthcare firm by market worth, had slumped 11.2 p.c this 12 months as of Friday’s shut, though current good points could point out the beginning of a rebound. The inventory’s year-to-date decline compares to greater than 2 p.c good points for each the S&P 500 healthcare sector .SPXHC and the blue chip Dow Jones Industrial Common .DJI, of which J&J is a member.
If J&J ends the 12 months with its present 11.2 p.c decline, 2018 would be the worst calendar-year efficiency in 25 years for the inventory, a bellwether for the healthcare sector and one historically thought of a safe-haven funding during times of market uncertainty.
The diversified firm, whose merchandise embody Band-Help bandages, Tylenol ache reliever, alternative knees and most cancers and immunology medicines, faces issues in all three of its important segments – prescription drugs, medical gadgets and client.
However the inventory’s swoon makes it look significantly low-cost, based mostly on its price-to-earnings ratio of 14.eight instances ahead earnings estimates, which is engaging traders, together with the inventory’s above-market dividend yield of two.9 p.c.
“We’re way more upbeat about J&J right now than we have been six months in the past,” mentioned David Katz, chief funding officer at Matrix Asset Advisors in New York, because the inventory traded simply above $120 a share.
“We undoubtedly assume it’s a horny funding alternative,” Katz mentioned.
J&J shares are up greater than three p.c in June, following 5 straight months of declines, the inventory’s longest such shedding streak in over a decade.
J&J’s prescription drugs section, roughly half of firm income, noticed gross sales leap by 19 p.c within the first quarter. However issues about generic-drug competitors eroding gross sales of prostate most cancers medication Zytiga, a standout within the first quarter, and rheumatoid arthritis drug Remicade have traders leery in regards to the section’s future efficiency.
Prescription drugs has been the strongest section of J&J’s companies, however “the flexibility to maintain an above-average development price has been a query,” mentioned Dean Dillard, senior analysis analyst at USAA Investments in San Antonio.
J&J’s medical gadgets section together with its orthopedics enterprise has been shedding market share, mentioned Jeff Jonas, a portfolio supervisor specializing in healthcare for Gabelli & Co.
Efficiency in J&J’s client section has been “fairly lackluster for a number of quarters,” Jonas mentioned. The division additionally could also be topic to weak investor sentiment usually for client model firms, amid fierce competitors and different issues.
“There’s concern round all three of the companies,” Jonas mentioned.
(GRAPHIC: J&J shares in 2018: A inventory in want of Tylenol – reut.rs/2Mg5dRC)
J&J shares might also be affected by issues about scrutiny over prescription drug prices which might be undermining pharmaceutical shares broadly.
“Sentiment stays pretty unfavorable for the group, in order that by and huge doesn’t assist Johnson & Johnson,” mentioned Kevin Gade, a portfolio analyst, who follows pharmaceutical shares at Bahl & Gaynor Funding Counsel in Cincinnati.
The inventory’s current valuation at 14.eight instances earnings estimates for the subsequent 12 months is its lowest since late 2015 and effectively beneath its five-year common of 16.5 instances, in response to Thomson P3PWriter Datastream.
J&J can be buying and selling at an almost 10 p.c low cost to the S&P 500 .SPX, in comparison with the slight premium it has held over the benchmark index on common over the previous 5 years.
Additionally interesting, traders mentioned, is J&J’s dividend yield of two.9 p.c in comparison with 1.9 p.c for the S&P 500, in addition to the corporate’s monitor file of constantly elevating it.
Except for paying its dividend, some traders need J&J to make use of its money for a inventory buyback or for an acquisition to enhance its development prospects.
J&J is “able to doing 10 $5 billion transactions. We don’t need to do a $50 billion transaction,” Chief Monetary Officer Dominic Caruso instructed an investor convention final week.
J&J’s broad healthcare portfolio, which provides merchandise that folks would require even in financial down instances, helps place it as a safe-haven inventory within the occasion of market volatility or an more and more unsure financial system.
“If and when the financial system sees unfavorable development,” Gade mentioned, “relative to the market, Johnson & Johnson is the kind of firm and enterprise mannequin an investor would need to maintain.”
Reporting by Lewis Krauskopf; Modifying by Cynthia Osterman