This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Johnson & Johnson Is Too Expensive

NEW YORK ( TheStreet) -- I didn't give Johnson & Johnson> (JNJ) a strong endorsement heading into the company's second-quarter earnings report.

While I have always liked the healthcare giant, there was two things keeping from buying the stock with the own money.

First and foremost, I thought the shares were too expensive, especially since they were trading at a price-to-earnings ratio six points higher than both rivals, Abbott Laboratories (ABT) and Pfizer> (PFE).

Not to mention that the stock had already gained 30% on the year, so there was also the issue of value. I never believed in the idea of paying a premium for a stock when its peers are performing just as well, or even better, in some cases.

My second concern was with the company's lack of diversification.

I'm not suggesting that Johnson & Johnson is a one-trick pony. But while the company does have several highly regarded operations like orthopedics, medical devices, nutrition and (of course) drugs, it is the last that has provided all of the torque, while the other businesses have just skated by. And in this recent quarter, it was more of the same as the consumer business posted just 2% growth (in constant currency).

While the device business registered a solid 12% growth, there was also a lot of moving parts in that number. When taking a deeper look from an organic perspective, the device business posted an anemic growth of less than 2%, when adjusting out the contribution from Synthes, which Johnson & Johnson acquired last year.

This is not a situation where I'm trying to discredit the company for having made a timely acquisition. Management deserves plenty of credit for recognizing that Synthes was the right deal at the right time.

But for me to take a chance here on this stock, which already carries high expectations, organic growth details become increasingly important.

As have been the case, though, for the past several quarters, Johnson & Johnson was high in the drug business, as pharmaceutical revenue surged almost 13% year over year, which was enough to beat Street estimates by 4%. As with the first quarter, popular drugs such as Xarelto and Remicade were solid performers, with the latter up 10% year over year.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs