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Motley Fool: Put Johnson & Johnson in long-term portfolio

Sun., April 20, 2014

Big blue-chip companies might not grow rapidly, but they can offer more stability than smaller counterparts, and they often pay dividends, too. Consider Johnson & Johnson (NYSE: JNJ), founded in 1886, which is much more than Band-Aids and Tylenol.

The company has three main divisions: consumer products, pharmaceuticals, and medical devices and diagnostics. Its pharmaceutical division has been on fire lately, cranking out consistent double-digit growth rates thanks to products such as Zytiga (treating prostate cancer) and mega-blockbuster Remicade (tackling rheumatoid arthritis and more). Its blood cancer drug Imbruvica has received FDA approval and might generate more than $6 billion in peak sales.

Other recent approvals include drugs tackling hepatitis C, mantle cell lymphoma and Type 2 diabetes. J&J’s medical device business is set for growth, too, following its massive Synthes acquisition, and the company is shedding its lower-margin diagnostics businesses, such as its blood-test operations.

Johnson & Johnson faces revenue losses due to patent protections expiring for some key drugs in the next few years, but its pipeline is cranking out new contenders. It exited 2013 with $20.9 billion in cash and cash equivalents, up 30 percent over 2012.

Recently yielding 2.7 percent and with a forward-looking price-to-earnings (P/E) ratio near 15, Johnson & Johnson is an appealing candidate for your long-term portfolio. (The Motley Fool owns shares of Johnson & Johnson and has recommended it.)

Ask the Fool

Q: I’m 40 years old and have a diversified portfolio of stocks. If I’d like to retire in 10 years, how many shares should I buy in order to make enough money to do so? – P.C., Tempe, Ariz.

A: Don’t think about the number of shares. What really matters is how much you sock away and how quickly it grows. The quality of the companies you buy into, and how well their stocks perform for you, will make a big difference.

Ideally, try to estimate how much money you’ll need to amass before retiring, and then figure out how you’ll get there.

Remember, too, that retiring at age 50 means you might need to live off your nest egg and retirement income for perhaps another 50 years – and that can be a tall order!

Q: When a stock drops, I lose money. Where does it go? – M.R., Chicago

A: When a company’s stock price declines, nobody necessarily benefits directly.

Imagine you own shares of Home Surgery Kits (Ticker: OUCHH). If shares drop 20 percent one day, you haven’t technically lost any money – unless you sell the stock. (After all, the shares could rebound.)

The shares are less valuable, though, because the market views them as less valuable owing to some news or to changing prospects. Think of how the value of a house or baseball card can change over time.

My dumbest investment

My dumbest investment was buying 620 shares of an energy company for $0.27 apiece after I got sucked in by a mailer saying, “WE STRUCK OIL.” It’s now selling for $0.06. Still, at least it got me excited about the stock market. I suck at this so far, but I am only 24, so I have a lot of learning to do. There is a lot of information everywhere, and it’s hard to figure out what’s important and what isn’t. – S.W., Dracut, Mass.

The Fool responds: Penny stocks get naive investors excited about their potential, but they often have little in the way of growth or profits, and they wipe out a lot of investors. Don’t fall for ultra-low prices – a stock selling for $0.10 per share can easily fall to $0.05, while a $300 stock can double.

It’s good that you didn’t lose too much, and very good that your interest in stocks has been sparked while you’re still young. Unlike most investors, your money can stay invested and growing for many decades.

Learn more about investing at or in books by Peter Lynch.


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