Johnson & Johnson Looks Fit to Investors

As most Big Pharma shares continue to stumble, Johnson & Johnson (JNJ) continues to march ahead so steadily that one analyst likens J&J's shares to the medical equities version of U.S. Treasuries. And that's not bad, considering today's market.

For the first eight months of the year, J&J's stock gained 11.9%. The Amex Pharmaceutical Index, which contains 15 stocks including J&J's, was down 4.2%, with only three other stocks in the black. During that same period, the S&P 500 index was down 0.6%. And J&J's stock has done well even though several big products are under the gun -- or soon will be -- by brand-name and generic competition.

J&J's rising stock can't be attributed to Wall Street hype because equity analysts aren't flocking to its shares. According to Thomson First Call, J&J has garnered nine buy recommendations, 13 hold ratings and one sell rating. (By contrast, 21 analysts advocate buying Pfizer(PFE), while nine have hold ratings. Pfizer's stock was down 7.7% during the first eight months of the year.)

Some analysts say J&J has succeeded because it has squeezed the most out of its mixture of prescription drugs, consumer products and medical devices.

"The company has a well-respected decentralized management approach with hundreds of operating divisions," said Robert C. Faulkner of Prudential Equity Group, in a recent report to clients as he initiated coverage with a neutral rating. "As the company evolved with the health care industry 30 or more years ago, management had a choice at a crucial moment whether to be the company of Band-Aids or a company driving health care forward through proprietary technology. Management chose the latter."

J&J maintains frequent communication with Wall Street, Faulkner added, and it is quick to revise and explain expectations when a product is under siege, such as in the case of the continuing price pressures on the Procrit/Eprex anemia drug franchise. And what else can you say about a company that is one of the first to report results after the end of each quarter despite its size and diversity? "It may be decentralized," Faulkner said, "but management knows what is happening everywhere."