Source: PaxForex Premium Analytics Portal, Fundamental Insight
Did you know that by earning an average annual return of 14%, a $20,000 investment can grow to $1,000,000 in 30 years? There's no need to take excessive risks by investing in emerging artificial intelligence stocks in hopes of becoming a millionaire. Instead, consider focusing on a robust and consistently expanding business that can deliver above-average returns over the long term.
One such stock that attracts long-term investors is Johnson & Johnson. This company boasts strong fundamentals, consistently generating impressive profits year after year. Moreover, it offers a dependable and growing dividend. Could investing in Johnson & Johnson potentially help you achieve above-average returns and bring sufficient profit in the long run?
In a recent development, Johnson & Johnson made a strategic move by spinning off its consumer health division, which is now known as Kenvue. This decision is expected to have a positive impact on the overall business since the consumer segment of Johnson & Johnson had been experiencing slower growth compared to other segments. With this spin-off, the company can now direct its focus towards pharmaceuticals and medical devices, both of which demonstrated operational growth rates of over 6% in 2022 (excluding the influence of foreign exchange), outperforming the consumer health business which grew at a rate of less than 4%.
While Johnson & Johnson faces challenges as its leading drug, Stelara, begins to lose patent protection this year, the company's management remains confident in the strength of its pipeline. They believe that, alongside potential acquisitions, the pharmaceutical business can achieve revenue of $60 billion by 2025, surpassing the $52.6 billion generated in 2022.
Furthermore, Johnson & Johnson recently completed the acquisition of Abiomed, a heart pump maker, for $16.6 billion. This strategic move is expected to enhance the company's medical device segment and enable them to expand their portfolio in the rapidly growing cardiovascular markets.
In addition to these developments, Johnson & Johnson has shown interest in next-generation healthcare technologies by acquiring Auris Health, a surgical robotics company, for $3.4 billion in 2019.
Considering these growth opportunities and strategic initiatives, Johnson & Johnson appears to have promising prospects, making it a potentially favorable investment.
Presently, Johnson & Johnson faces a significant challenge in the form of tens of thousands of lawsuits associated with its talc liabilities. These legal issues cast a shadow over the company's future. However, it is encouraging to note that Johnson & Johnson is actively working towards addressing this risk and resolving these concerns.
In April, the company announced a talc settlement of $8.9 billion, pending approval from a bankruptcy court, with the support of plaintiffs' lawyers. This settlement represents the present value of the total payout of $12 billion that Johnson & Johnson will make over a 25-year period. Considering the company's substantial profits, surpassing $14 billion annually for the past four years, the financial impact of this settlement is relatively manageable.
The more significant question, however, pertains to whether Johnson & Johnson can achieve a growth rate that generates consistent, above-average returns in the long run. Over the period from 2012 to 2022, the company's sales increased from $67.2 billion to $94.9 billion, resulting in a compound annual growth rate of just 3.5%. Additionally, over the past decade, the total return of the stock (including dividends) amounted to 145%, which would have grown a $20,000 investment to slightly under $50,000. While this return is respectable, it indicates that investors have not been particularly enthused about the company's growth.
For Johnson & Johnson to become a stock capable of generating substantial returns without requiring a significant investment, it needs to significantly accelerate its growth rate.
While the price is above 159.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 161.50
- Take Profit 1: 171.00
- Take Profit 2: 175.50
Alternative scenario:
If level 159.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 159.00
- Take Profit 1: 154.50
- Take-profit 2: 152.00
