Stick With Johnson & Johnson for Healthy Gains

JNJ stock offers piece of mind and the shares are at all-time highs.
By Richard Saintvilus ,

How high can shares of Johnson & Johnson (JNJ) - Get Report go? The company is set to report second-quarter earnings results before the opening bell Tuesday. You would be hard-pressed to find a hotter large-cap stock.

Shares of the healthcare conglomerate are now trading near all-time highs, soaring some 26% in the past six months, including three-month gains of 12%, doubling the 5.6% rise in the Vanguard Health Care ETF (VHT) - Get Report during that span. JNJ has now returned more than 27% since my buy recommendation back in January and about 9% my buy recommendation on May 12. The company is poised to deliver more gains.

Not only is Johnson & Johnson benefiting from a combination of market-leading drugs and its dominance in consumer products like baby powder and bandages, the company now seeing higher demand in its Medical Devices, which allowed JNJ to hike its full-year 2016 adjusted earnings guidance to $6.53 to $6.68 per share. The high-end range is now 7 cents above consensus. And that's even with analysts' 2016 estimates rising 8 cents since the start of the just-ended quarter.

Beyond its strong fundamentals, Johnson & Johnson's technical metrics are just as impressive, if not more. Take a look at the chart below, courtesy of TradingView.

JNJ trades around $123 per share. The stock is up some 20% year to date against a 5.6% rise in the S&P 500 (SPX) index. It has skyrocketed about 50% above its 52-week low of $81.79. This compares to a 1.6% year-to-date rise in the broader VHT ETF, suggesting JNJ is leaving its peers in the dust.

Despite the stock's strong surge, which has placed JNJ shares 9% above its 100-day moving average of $112.86 (yellow line), the near-term and long-term trends remain bullish. JNJ stock has established support at around $119 (thin green line) after having consolidated around the $115 level. This combination implies downside risk of only 3%.

At the same time, while the near-term resistance is now at $123, the long-term resistance has climbed to around $130, creating a positive spread to support position -- the difference $115 to $130 -- of 13%. In other words, while a rise to $130 would only yield gains of 5.7%, JNJ stock also offers piece of mind -- an important factor, given the shares are at all-time highs.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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