Five Best Stocks for '07

Oh, and did I mention that the shares are cheap? Standard & Poor's calculates that the company trades at just a forward PEG ratio (projected price/earnings divided by projected growth rate) of just 1.3 vs. a PEG of 1.7 for its peers in the consumer-products sector. The shares also pay a 2% dividend.

Johnson & Johnson looks like it has worked its way through the problems that drove shares down as low as $56 a share in February 2006. In the drug unit, which accounts for about 45% of sales, the company's pipeline of new products should start contributing to revenue in 2007, diminishing the effect of older products coming off patent.

In the medical-device business, which accounts for 38% of sales, the company expects to be able to generate 5% to 6% revenue growth, a come-down from the heady 10% growth in the early part of the decade, but the segment's contribution to earnings growth will be healthier than the top-line number indicates, thanks to operating markets that climbed to 28.4% in 2005 from 24.2% in 2004.

The acquisition of Pfizer's(PFE) consumer health care business (which will add brands such as Listerine, Lubriderm, Benadryl, Sudafed, Nicorette and Visine) will add about $4 billion in revenue to Johnson & Johnson's consumer segment (now 18% of sales). For the long haul, I like the company's continued commitment to research and development, which accounted for 13% of revenue in 2005, and its record of successful product innovation.

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