From Stansberry Research:
Sometimes, it's best to just start with the facts...
Try these: More than 130,000 employees... 260 separate operating companies... operations in almost every country in the entire world... in business since 1887... owners of the broadest range of branded health-care products in the world... owners of 12 separate "blockbuster" drugs and medical devices that achieve more than $1 billion per year in sales... has increased its dividend for 56 years in a row...
We're talking about Johnson & Johnson (NYSE: JNJ).
As you can tell, the company is massive... And it's well-diversified.
In addition to being the largest consumer-health products company, it's also the second-largest pharmaceutical company in the U.S. and one of the top medical-device firms. It makes more than $80 billion each year in sales. About half comes from pharmaceuticals, 33% from medical devices, and the rest from its world-class stable of consumer products.
The company's brands dominate every pharmacy in the world... Tylenol, Motrin, Pepcid, Band-Aid, Neutrogena, and Johnson's Baby Powder. In 2006, Johnson & Johnson bought Pfizer's entire consumer-products company for $16 billion. In the deal, it added high-profile brands such as Listerine, Nicorette, Rolaids, Benadryl, Neosporin, Visine, and more.
It's a fantastic business... People will always turn to these brands at their local pharmacy.
We love Johnson & Johnson's business model...
You see, it's mostly a marketing and distribution firm – not a research and development ("R&D") shop. Yes, it spends $10 billion per year on R&D... But it isn't dependent on its own R&D for business success. This means that Johnson & Johnson can focus on its core business – selling its signature products – and keep its R&D expenses relatively low.
Instead, Johnson & Johnson excels at acquiring good businesses and then plugging their products into its marketing and distribution machine. For example, it acquired Frontier Contact Lenses in 1981 and rebranded the company. Today, Johnson & Johnson Vision is one of the leading sellers of contact lenses – with more than $3.3 billion in sales last year.
Branding, marketing, and distributing medicines, devices, and health-care products is one of the best businesses in the world – and Johnson & Johnson is the best at it. That's why its operating margins are consistently around 25%. And its return on equity is close to 30%.
Financially, it doesn't get much better than the company's balance sheet...
Johnson & Johnson continues to grow its sales and earnings while holding its debt at a manageable level. This puts it in a good position to deal with an economic downturn.
It's easy to make an investment case for Johnson & Johnson... You're buying one of the world's best companies for around the market's average valuation. Johnson & Johnson's stock currently trades at 13.7 times its earnings before interest, taxes, depreciation, and amortization ("EBITDA"). By comparison, the benchmark S&P 500 Index currently trades with an average valuation of a little more than 12 times EBITDA.
(EBITDA is a measurement of a company's cash earnings. It measures the company's cash-generating power. Stock and bond investors use EBITDA to value companies by comparing it to their "enterprise value" – the value of the company's stock plus debt minus cash.)
And if you're looking for income, the company's stock is one of the best ways to earn it...
As we mentioned earlier, Johnson & Johnson has increased its dividend every year for 56 years. Over the past decade, it has raised its dividend at an annual rate of 6.95%...
And yet, the company is paying out just more than half of its net profits in dividends. That means it has plenty of room for further increases. That's great news for investors.
Even better, Johnson & Johnson rewards its shareholders in other ways, too. The company recently announced that it is in the middle of a $5 billion share-repurchase program.
Johnson & Johnson remains a huge, strong business. It continues to steadily grow its sales and earnings while returning loads of capital to shareholders through dividends and share buybacks. These "juggernaut" businesses are just the type that we love to invest in.
The stock fell to a five-month low of less than $123 per share on Christmas Eve. But since then, it has rebounded about 9% to more than $134 per share today. And with its market-leading position, the company should continue to do well in the coming years.
Sometimes investing is simple.