Johnson & Johnson Prescribes Healthy Returns Without M&A or Breakup

NEW YORK (TheStreet) – Bigger is not always better and breaking up is hard to do. Even worse, pursuing a market just because it's the trendy thing to do can become a recipe for disaster.

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]

With Johnson & Johnson's P/E now over 20, doubling that of Pfizer (PFE), the concern is that the stock has gotten expensive. While shares are not as cheap as they were toward the end of the March quarter, things are only going to get better, given management's focus on shareholder returns.

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