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I went through the shareholder reports today and created the following chart based on what I found.
It shows inflation adjusted sales and earnings per diluted share going back to 1992. I've also added an exponential trend line based on the sales data from 1992 to 2007.
When combined with a flat stock chart over the last decade, this is exactly the sort of thing that I was always looking for as an investor.
There's one problem though. I do not trust the real sales per diluted share trend. Since I am bearish on our economy long-term, that is not the sort of exponential trend failure that I want to see during a supposed recovery.
Am I being too pessimistic to pass on this stock as a suitable long-term investment? Perhaps I am. In fact, I hope I am. I would sleep better if prosperity was restored. However, I do not have a job to fall back on if I am right to be bearish. If the recent decline in real sales per diluted share continues then eventually it will affect real earnings per diluted share (even more than it already has).
On the one hand, this company currently pays a juicy 3.6% dividend and has an excellent long-term track record. I would certainly not fault people for taking the risk. On the other hand, I have owned stocks with juicy dividends and excellent long-term track records in the past. Citigroup comes to mind. I sold it in 2004 along with the rest of my stocks.
If I can't seem to get myself interested in one of the last AAA rated companies, then there is little hope of sparking my interest elsewhere. Ben Bernanke can entice me all he wants. I continue to embrace safety in spite of him. I do not believe that he has the power to actually create prosperity.
This is not investment advice.
Disclosure: Long TIPS, I-Bonds, and cash.
Source Data:
Johnson & Johnson: Investor Relations
BLS: CPI
16 comments:
I just see the country cutting consumption of J&J stuff in half.
We going to learn how to economize now the free money is no mo'.
But maybe I'm oversold on my own thesis.
Troy,
I hear you. Many of JNJ's products can be quite expensive. There are cheaper alternatives.
Equate: Baby Shampoo
Compare to Johnson's Baby Shampoo
I know because a doctor recommended that I use baby shampoo for an eye problem once. The Equate brand works just fine. No complaints at all.
And for any concerned mothers out there, I was rubbing the Equate baby shampoo directly onto an eyelid.
No tears. No discomfort. Two thumbs up.
Mark,
you list cash...do you money market funds, cds, treasury bills or the bank of sealy?
fried,
It sits mostly in an FDIC insured online savings account earning 1%. Not many good choices for short-term money.
If interest rates fall to zero on that account then some will move to actual cash. Sigh.
It's money that I'll know I'll need within 5 years plus a safety buffer.
If JNJ was such a good deal then 'splain why over the past 24 months insiders have purchased 7000 shares and sold 1,107,220 shares.
http://www.j3sg.com/Reports/Stock-Insider/Generate.php?DV=yes&tickerLookUp=jnj&Submit2322=GO
While I understand that insiders get compensation through stock--that's 158 shares sold to 1 purchases.
Also keep in mind that at the bottom of most bear markets the S&P 500 dividend rate moves to 6%. Right now it stands a little above 2%. JNJ is a high paying dividend stock so one wonders how a bear market average dividend would be reflected in JNJ's stock price.
I think it could be a marvelous pickup if it does a stock split the hard way :) and insiders get enthusiastic.
jshaef1
http://www.multpl.com/s-p-500-dividend-yield/
Here is a look at dividend yields on the S&P for about the last century. Not the dividend yield was over 6% the last time Mark's low trend line was hit on the Dow chart, a few post back.
Can 6% happen again?? Hehe--this time we got a president running for election (1932) and a Federal Reserve Board (1932, 1982) to cushion us, correct?
Here's something else to think about.
I strongly believe that the odds of approaching the low bearish trend line are much, much higher than the odds of approaching the high bullish trend line.
I back my claim on the long-term exponential trend failures in GDP growth, employment, and LA area cargo traffic (as seen in the charts of this blog). I would bet all that I own that we will never return to the pre-crash growth trends. I just don't see how it is mathematically possible. It is possible that we can grow again, but not at the rate we once were growing at. That era is over. Too many headwinds now, with simple math being one of them. Sigh.
I'm not optimistic about the path we are on, not by a longshot.
Curious - why would a rating agency's assessment of a company have any bearing on your interest in that company's stock? The ratings agencies long ago abdicated all credibility.
Especially if (according to your disclosure) you don't even invest in stocks currently?
Wasn't Mark's point that Uncle Ben wants to push everyone into "risk" and the rating gives some measure comparison between what he is in now and what Benron is trying to push him into.
I certainly agree on the ratings agencies.
jshaef1
WSM,
Curious - why would a rating agency's assessment of a company have any bearing on your interest in that company's stock?
Excellent question!
I don't trust rating agencies any more than you do. However, it is not difficult to see why JNJ is still rated AAA.
From the most recent JNJ shareholder report:
Cash, cash equivalents and marketable securities totaled $27.7 billion at the end of 2010, and averaged $23.6 billion as compared to the $15.6 billion average cash balance in 2009.
...
The total debt balance at the end of 2010 was $16.8 billion as compared to $14.5 billion at the end of 2009.
The company could pay off all its debt simply by using all of its cash. Wouldn't it be nice if most balance sheets in this country were that strong?
This is the process I used in the late 1990s to find the 20 or so stocks I wished to own.
When I received a large monetary windfall in the late 1990s I bought the S&P 500 Guide and read the book cover to cover. I pared down the stocks to about 50 contenders (by staring directly at the financial data, with a bonus added for "name brand" stocks). I'd then try to figure out the stocks from that list that the market seemed to currently have little interest in (flat stock charts were a bonus). I did read the opinions of the guide but you can probably guess from what I write on my blog that I took them with a very high level of skepticism. In general, I do think the opinions helped me more than hindered me though (if nothing other than by explaining
In hindsight, it worked pretty well. I sold the stocks in 2004 for a profit. I can't say it was a huge profit (performed similar to CDs), but it was better than a kick in the teeth.
If I had found JNJ to be a compelling buy then I would have repeated that process. It is a lot of work though and I just don't see a reason to do it if I can't even get JNJ to interest me.
I offer the following amusing quote from the commentary for Citigroup from the 1999 edition of the guide. Citigroup was one of my best performers but by 2004 it was a reason for my bearishness. I went from wanting credit card exposure to not wanting it.
"Longer term, the pending merger with Travelers is expected to create vast opportunities for cross marketing of products, increased revenue diversity, strong capital levels and enhanced global presence."
Isn't that just a hoot in hindsight?
jshaef1,
Yes. That's pretty much my point in a nutshell!
I managed to cut part of what I wrote when I was rearranging it.
In general, I do think the opinions helped me more than hindered me though (if nothing other than by explaining some of the recent price action and pointing out some potential problems I might not have thought of).
I should also mention that I was trying to get the roughly 20 stocks I bought to be moderately diversified. I tried not to pile too much into any one industry or sector.
I was basically trying to replicate a stock market index of my choosing that had zero management fees and a low turnover rate (for tax purposes).
ObamaCare is scaring me away from companies like JNJ. I expect them to have an increase in uncollectable accounts receivable (hospitals).
Charles Kiting,
Yeah, I pretty much just stuck to the known knowns.
The known unknowns add even more risk.
The unknown unknowns are were the risk really comes in though.
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