Johnson & Johnson (JNJ) investors love playing "armchair CEO." On the heels of Medtronic's (MDT) $42.9 billion deal for Covidien (COV), Johnson & Johnson is perceived not big enough. And this comes after years of pleas to break up Johnson & Johnson into smaller pieces.
The stock closed Friday at $105.10, up more than 16% on the year to date. Johnson & Johnson shares are outperforming the health care sector's 12% gain. As it stands, very few drug/med-tech companies have performed as well, especially given Johnson & Johnson's size ($300 billion market cap).
These same investors who think they know the company better than its management does have made a lot of money, proving that investors only need to invest and let company leaders lead. That's the way it works. As evidenced by the company's strong profit growth (up 35% in April) and the stock's YTD performance, management knows what it's doing. But that hasn't stopped the nervousness.
[Read: 14 Insanely Important Biotech/Drug Trading Catalysts]
[Read: Medtronic’s Play for Covidien Is No Solution for Silicon Valley] Johnson & Johnson's management understands that amid all of the noise about M&A, organic growth and the so-called diminishing productive balance, Johnson & Johnson can/will deliver where it matters the most -- on the bottom line. Consider, even in Johnson & Johnson's known weak areas like the consumer segments, the company only needs to increase that business at a 3% rate to generate long-term profit and organic growth. With J&J's $30 billion in cash on the balance sheet and another $19 billion in operating cash flow, investors will insist that a deal gets done. But "bigger" only for the sake of getting bigger makes no sense. Not trusting management of the company to execute the business is the worst blunder of them all, especially after such healthy returns. At the time of publication, the author held no position in any of the stocks mentioned. Follow @Richard_WSPB This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- 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 + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV