J&J Is Safety in a Dangerous Market

"Why jump over 7-foot hurdles when you can walk over 1-foot hurdles?" Such is the Warren Buffett philosophy on investing: Buy the easy-to-understand businesses and let them compound your money. Such is the beauty with names like Coca-Cola (KO - commentary - Cramer's Take), Wal-Mart (WMT - commentary - Cramer's Take), Kraft (KFT - commentary - Cramer's Take) and Procter & Gamble (PG - commentary - Cramer's Take).

But an often-overlooked company is Johnson & Johnson (JNJ - commentary - Cramer's Take), a business with an excellent track record that you can be comfortable buying today and holding in this market.

Johnson & Johnson has one of the best long-term track records I've come across, even rivaling that of Berkshire Hathaway (BRK.A - commentary - Cramer's Take) or Altria (MO - commentary - Cramer's Take). For the past 100 years, J&J has compounded sales and earnings growth in excess of 10% a year. This is a significant feat, as the period includes multiple recessions and a major depression.

The company's products have nearly unlimited worldwide growth potential. The Medical Devices and Diagnostic division is dominated by franchise-type products that are required regularly -- cancer test kits, contact lenses, insulin kits, you name it. Many of its products are No. 1 or No. 2 in their markets. Their diabetes and vision care franchises are without equal; looking forward, the growth in these areas should easily exceed 10% a year. This speaks volumes of the brand's dominance as J&J is pressured from generic competitors.

Despite the worldwide economic contraction, J&J continues to grow in all divisions. The Consumer segment, which sells brands such as Listerine and Neutrogena in addition to baby products and skin-care items, reported a sales increase of 13% in the third quarter. Similarly, the Medical Devices segment also had a sales increase of 8.8%. To be sure, the weak dollar contributed to the international sales, which are about 50% of overall sales. The strengthening dollar will likely have a slight drag on the numbers, but sales volume should steadily increase.

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At the time of publication, Gad was long Berkshire Hathaway, although positions may change at any time.

Sham Gad is the managing partner of the Gad Partners Fund and the Gad Partners Offshore fund, value-centric investment partnerships based in Athens, Georgia. Gad has written extensively for the Motley Fool and was a securities analyst for UAS Asset Management, a small, value-focused fund in New York City in 2007. Previously, Gad managed assets for the Gad Investment Group. For additional information, please visit www.gadcapital.com.

Gad also runs a value-investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Send Sham Gad an email. You can reach Gad at [e-mail].