Buy Alcoa, Intel; Sell Infosys; Hold Johnson & Johnson

Johnson & Johnson (JNJ) continues to be misunderstood. Even so, its stock continues to perform adequately despite execution problems including product recalls. What has hurt JNJ of late is that it is perceived "too big to succeed."

Unlike several of its rivals, namely Pfizer (PFE), Novartis (NVS) and Covidien (COV), which now appear more nimble and adaptable, JNJ comes across as incredibly stubborn in it unwillingness to adapt.

Its insistence on remaining one entity has hurt it. It would have seen positive results if it had opted to separate its businesses. JNJ has yet to prove that it can make a solid turnaround as long as it remains (in my opinion) too big and lacking in agility.

The company plans to report third-quarter earnings on Tuesday, and analysts are looking for net income of $1.21 per share, representing a decline of 2.4% from the same period one year ago. In its second quarter, however, profits fell almost 50% to $1.41 billion from the $2.78 billion that it reported a year ago. As a result, the Street has grown more pessimistic about the company's prospects, and I think investors should as well.

The fact that the stock is yet near its 52-week high is impressive and suggests that the company still has a good reputation in some quarters.

Nonetheless, analysts at Goldman Sachs have issued a sell rating on the stock even though they also set a price target of $72, which is higher than where the stock currently trades. I'm not bullish JNJ at this point, but its track record of solid performances suggests that it deserves time to be proven right. For now it's a hold.

Bottom Line

Earnings season can be both an exciting time as well as one that brings a lot of anxiety for companies and investors. It's called the reporting period for more than one reason as companies are essentially sharing their quarterly report cards -- where getting a passing or failing grade often depends on the expectations that were set.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. Follow @rsaintvilus

At the time of publication, Saintvilus held no positions in stocks mentioned.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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