With its baby powder and Band-Aids, Johnson & Johnson (NYSE: JNJ) has long been known as an over-the-counter giant. You may not realize it, but one of the company’s other business segments has begun to drive the company’s future growth.
Consumer goods generated only 13 percent of J&J’s operating profit for 2010, with 40 percent coming from pharmaceuticals and 46 percent from medical devices. The medical devices share has grown in recent years, while the other segments have shrunk.
Johnson & Johnson is now the largest medical devices and diagnostic company worldwide. It has focused on treatments for issues ranging from diabetes to vision care, and with its recent purchase of Swiss medical device maker Synthes, orthopedics.
Orthopedics is a growing market. By 2030, one in five Americans will be over 65, and more than 200,000 will top 100. Three years ago, American Medical News estimated that these aging patients would need more than 600,000 hip and 1.4 million knee replacements by 2015. Johnson & Johnson is right at the edge of an exponential market explosion.
With a dividend yield topping 3 percent, the company is worth considering. (The Motley Fool owns shares of Johnson & Johnson, and its newsletter services have recommended Johnson & Johnson.)
Ask the Fool
Q: Should I be regretting missing out on LinkedIn’s hot initial public offering last month? – A.W., San Antonio
A: Not at all. LinkedIn is a great reminder of why it’s often best to watch hot IPOs from the sidelines. Here’s how it all worked:
The shares were ultimately priced at $45 by the Wall Street underwriters Morgan Stanley and Merrill Lynch, who pocketed around $25 million for their services. The newly minted shares were distributed by the underwriters, and typically, these shares go to wealthy, favored clients – not to small investors such as us.
The shares commenced trading, though, at $83, giving initial investors an immediate $38-per-share gain. Unfavored investors who rushed in quickly snagged shares at anywhere from $83 to $122 on the stock’s first day.
That might make you lick your chops, but the share price started falling later in the day, as many people sold to lock in gains or avoid losses. After all, many of those folks weren’t long-term investors in the company, but short-term speculators. The shares closed that day around $94, and were recently below $80.
Many people lost money on the stock, and even the company itself might have done better. Since the 7.84 million shares it sold could have been priced higher, it left gobs of money on the table – much of which went to the underwriters’ clients.
The best IPO strategy is to give a new stock time to settle down and the company time to establish a track record.
Q: Where can I find the most basic introduction to investing? – R.W., Tallahassee, Fla.
A: Click over to www.fool.com/how-to-invest, or read Peter Lynch’s book, “Learn to Earn” (Simon & Schuster, $15).
My dumbest investment
When I was a newbie in the stock market, my dumbest investment was expecting my full-service broker to tell me, in return for hefty commissions and fees, how best to invest. I wish I’d been advised to reinvest my dividends, especially when in 2008 I was buying blue chips and other dividend-paying stocks for a pittance. The dividends would have bought more shares for a pittance, too. I wish I’d been warned to be careful in placing limit orders for stocks. I missed the opportunity to buy hundreds of shares of Ford at $1.02 apiece because my order required a price of $1. – S.A.B., Indianapolis
The Fool responds: It looks like you’ve come a long way, albeit without much help from your full-service broker. These days, those who make their own investment decisions can be well served by what we used to call “discount brokers.” Along with commissions of $10 per trade (or less), many now offer lots of services, such as stock and fund research, planning tools and even banking services. Learn more at www.consumersearch.com/ online-brokers and www.broker.Fool.com.