With shares of Johnson & Johnson (NYSE:JNJ) trading around $85, is JNJ an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Johnson & Johnson engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company offers a range of products used in the general care, women's health fields, as well as nutritional and anti-infective, contraceptive, gastrointestinal, oncology, pain management, and vaccines. It also offers products to treat cardiovascular disease, orthopaedic and neurological products, blood glucose monitoring and insulin delivery products, and general surgery products. Through its wide variety of healthcare products, Johnson & Johnson is able to support consumers and medical businesses around the world who continue to demand for improved products. As consumers become increasingly health aware, Johnson & Johnson stands to see profits well into the future.
T = Technicals on the Stock Chart are Strong
Johnson & Johnson stock has broken above a key value area and seen a consistent uptrend over the last few years. The stock is currently trading at all-time high prices and is searching higher for a new value area. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Johnson & Johnson is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Johnson & Johnson options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Johnson & Johnson Options | 15.2% | 70% | 67% |
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| May Options | Flat | Average |
| June Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Johnson & Johnson’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Johnson & Johnson look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -13.48% | 1050% | -8.7% | -50% |
| Revenue Growth (Y-O-Y) | 8.46% | 8.02% | 6.54% | -0.74% |
| Earnings Reaction | 2.11% | -0.51% | 1.38% | 0.8% |
Johnson & Johnson has seen increasing revenue figures over most of the last four quarters while earnings has been shrinking. From these figures, the markets have generally been pleased with Johnson & Johnson’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has Johnson & Johnson stock done relative to its peers, Covidien (NYSE:COV), Novartis (NYSE:NVS), Pfizer (NYSE:PFE), and sector?
| Johnson & Johnson | Covidien | Novartis | Pfizer | Sector | |
| Year-to-Date Return | 21.60% | 10.84% | 16.82% | 17.21% | 18.75% |
Johnson & Johnson has been a relative performance leader, year-to-date.
Conclusion
Johnson & Johnson provides health care products in a variety of stages to consumers and medical businesses around the world. The stock has been in an excellent uptrend in recent times and is now trading at all-time high prices. Revenue figures have been steadily rising while earnings have been mixed, regardless, investors have been pleased. Relative to its peers and sector, Johnson & Johnson has led in year-to-date performance by a significant spread. Look for Johnson & Johnson to continue to OUTPERFORM.
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