iBooyah.com Investment Matters

Valuation Opportunity:  In comparing JNJ valuation with its major competitors, JNJ is definitely undervalued.   For example, compare the P/E ratio to AMGN, MRK and NVS; it is apparent this stock is undervalued at P/E of 16.21; the industry average is18.79.  The recent decline of JNJ has also made the stock quite attractive as the risk/reward factor appears favorable. It's important to note, the recent decline has little to do with the JNJ's business; the overall market has been bearish.

Economic condition:  We believed there is ample evidence to suggest the economy could be slowing faster than anticipated.  For example, the housing market has not yet hit bottom.  The recent subprime fallout is only the beginning.  The next phase will be those that have adjustable rate loans that will reset. A lot of folks that recently bought second home and investment properties could find themselves in a world of trouble. When that happens, we could see the next wave of pain. The ripple effect will be damaging to the overall economy.

The point here is if the economy does experienced a “hard landing”, companies like JNJ will likely be in demand as investors will move their money to defensive stocks.

Solid earning and stock outlook:  Considering the size of this company, JNJ is a well managed company.  Their recurring revenue makes the company even more attractive in these uncertain times. In our view, this is the type of company to have in your portfolio when the economy is shaky.  Given this stock has been on the decline and now appears to have reached its support level; the risk of further downside appears minimal.  To be on the conservative side, our 12 month target price for JNJ is $70 per share.