Should You Dump Johnson & Johnson for Baxter and Abbott?
2017 was a good year for Johnson & Johnson (JNJ) - Get Johnson & Johnson Report , as shares rallied some 21%. However, 2018 may not carry the same fortunes.
It may only be January 2, but the analysts at JPMorgan aren't wasting any time. Analyst Michael Weinstein downgraded J&J stock to neutral from outperform. However, he's maintaining his $150 price target for the stock, which implies about 7% upside from current levels.
Given the lower rating yet higher price target, it's not surprising to see the stock's lacking reaction to JPMorgan's move. Although Weinstein remains "fundamentally bullish" on J&J, he makes the case that at 17.9 times 2018 earnings estimates, there are simply more attractive stocks to own.
Specifically, he likes Baxter International (BAX) - Get Baxter International Inc. Report and Abbott Laboratories (ABT) - Get Abbott Laboratories Report . He upgraded both to overweight as a result.
Ironically, Weinstein wasn't the only bull for these stocks Tuesday. Bank of America/Merrill Lynch analyst Bob Hopkins upgraded Baxter to buy from neutral, bumping his price target to $73 from $64. The target implies about 14% upside from current levels.
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As for Abbott, Morgan Stanley's David Lewis upgraded the stock to overweight from equal weight and raised his price target to $67 from $60. Lewis' price target implies about 17% upside from current levels. New product launches should drive organic growth for Abbott, as revenue and profit growth accelerate. This "premium growth will likely be rewarded with a premium multiple," Lewis contends, driving Abbott stock higher.
So the verdict isn't necessarily that J&J is a bad stock to own. Instead, it's that J&J stock has less upside than the 14% and 17% some analysts see in Baxter and Abbott, respectively.
Abbott Laboratories is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells ABT?Learn more now.
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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.
