I am starting to look at JNJ in more detail. Came across this interesting article at http://money.cnn.com/2010/08/18/news/companies/jnj_drug_recalls.fortune/index.

htm Do folks think that items noted in article is priced into the price of JNJ. My initial impression is that it is selling below fair value. Obviously a lot of smart people feel that price is attractive.
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txlaw

Posts: 1090 Hero Member

Re: Why J&J's headache won't go away

Reply #1 on: August 19, 2010, 07:37:02 PM

Quote from: biaggio on August 19, 2010, 04:22:22 PM I am starting to look at JNJ in more detail. Came across this interesting article at http://money.cnn.com/2010/08/18/news/companies/jnj_drug_recalls.fortune/index.htm Do folks think that items noted in article is priced into the price of JNJ. My initial impression is that it is selling below fair value. Obviously a lot of smart people feel that price is attractive.

This is a serious issue for JNJ, but I think there is a high probability that they will make things right. You can bet that Buffett will have something to say about it behind the scenes if they don't take appropriate action. I don't own JNJ for my own account, but I'm planning on buying some for my parents' account.
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vinod1

Posts: 338 Sr. Member

Re: Why J&J's headache won't go away

Reply #2 on: August 19, 2010, 07:45:23 PM

I think the way to think about this is to ask yourself "Is this problem is solvable?" Vinod
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RRJ

Posts: 91 Jr. Member

Re: Why J&J's headache won't go away

Reply #3 on: August 19, 2010, 09:28:25 PM

Yes, is the problem solvable (I think it is, and they are already attacking that, as they have other problems in the past). And two, will this have a lasting negative impact on the brand. This one is a little harder, but JNJ knows the lesson -- take the hit, spend the money, and turn lemons into lemonade by actually using this to increase the public's confidence in their products in the long term. Likely to end up a replay of the Tylenol scare of the 1980s, which solidified JNJ's quality in the public's mind. At least that's what I hope will happen. I think they are smart enough and long-term thinking enough to pull that off.
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Uccmal

Posts: 1356 Hero Member

Re: Why J&J's headache won't go away

Reply #4 on: August 20, 2010, 04:57:34 AM

Here is what I see with JNJ: Pluses: - Lots of cash to do what they want with including acquisitions as needed to add drugs - Can borrow money at rates that are beyond cheap - 2.9% for 10 years - Products that you dont even know you are using - take a look through a lady's supplies one day and you will find several JNJ products (dont get caught or at least ask permission first) - I still buy their childrens products for the baby even though there has been a recall. - low corporate debt - Diversification across product lines - less dependent on single blockbuster drugs such as Pfizer - Demographics and first past the post - they already exist and have supply lines and product distribution channels in place - hard to compete with. - R&D - article refers to nano-drugs. - dividends - refer to minuses minuses - next post
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Uccmal

Posts: 1356 Hero Member

Re: Why J&J's headache won't go away

Reply #5 on: August 20, 2010, 05:06:32 AM

Minuses: - Very large company - depressed market cap of 172 B - Where do you go from here - at a certain point it is best to pay a large portion of their cash out as dividends rather than aiming for market cap growth. - present management appears to have lost control - probably time to drive out the CEO and the QA/QC lady who is taking the fall - He should have been at the hearings - This is immently fixable in my opinion - HD has effectively done it. - company appears to have gotten sloppy - because there were no deaths they are trying to excuse it. - Large size seems to necessitate the need for purchases of larger outside entities in order to expand. I find this process to be dubious - Better to contract out certain things and buy in specific products. - Company needs to be decentralized again - each operating division needs to be responsible for their own product lines with their own brands.

I guess it boils down to whether I will still buy their products and the answer is yes, unless I see more reasons otherwise. I do own the stock and have been buying at this price. Certainly not a Graham play but I have set up a certain amount of my holdings to generate cash and protect me from a market crash as much as one can.

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biaggio

Posts: 789 Hero Member

Re: Why J&J's headache won't go away

Reply #6 on: August 20, 2010, 05:23:46 AM

Agree with above. Will turn current problem around and turn lemon into lemonade. I am getting a fair value of $65/share. Am I in the right ballpark? I like the dividend + love the consumer products but is it selling with enough MOS.
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Viking

Posts: 541 Hero Member

Re: Why J&J's headache won't go away

Reply #7 on: August 20, 2010, 09:11:42 AM

the fact this was Buffett's only large recent purchase tells me all I need to know about current valuation (as I have said in the past holding this co is perhaps a better option than holding bonds). The fact that it is a large FFH holding further confirms to me that it is a solid long term bet. Having said all this my current favourite big pharma play is ABT. They are similar to J&J, but they are smaller and look to have a much higher growth rate (looking out 3 to 5 years). My guess is J&J will grow earnings 7-8% and ABT will grow earnings 10-12%. Both are trading today at similar PE's (around 12).
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biaggio

Posts: 789 Hero Member

Re: Why J&J's headache won't go away

Reply #8 on: August 20, 2010, 01:53:17 PM

Thanks Viking, Agree re Buffett holding it as one of his larger holdings (as well as Prem, no?) is a good validation. Seems like ABT would have a larger MOS. I will have a look at that. Looking to develop more my shopping list in case Canadian $$ strengthens to par.
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biaggio

Posts: 789 Hero Member

Re: Why J&J's headache won't go away

Reply #9 on: August 23, 2010, 05:10:56 PM

Johnson & Johnson recalls contact lenses overseas http://www.usatoday.com/money/industries/health/2010-08-23-jnj-recall_N.htm Health giant Johnson & Johnson has issued its ninth recall of a consumer health product in a year, this time covering millions of 1 Day Acuvue contact lenses sold in Japan and several other countries in Asia and in Europe

Dear Editor: After reading the article Why J&Js Headache Wont Go Away I am writing to express my annoyance at yet another attempt by inept media to bash and demonize big business in order to sell magazines with reports of doom and gloom. Lets start by the most clear fact.In 1982 seven people DIED because one of Johnson & Johnsons products was tampered with. IT WAS A HOMICIDE!! The crisis of 1982 in no way even comes close to the over dramatized recalls occurring at McNeil today. The FDA and Edolphus Towns have jumped on the Democratic current trend of overly harsh blaming big business and especially health care companies for all of the nations problems in order to push through very disturbing and dangerous government overhauls, reforms and regulations. And, how does our media react they leap on the band wagon without giving equal time or consideration to both sides. You insult yourselves and the very intelligence of the consumers who know how to process information and make reasonable decisions based on fair and accurate information. Your article specifically tries to undermine the public confidence in Johnson & Johnson for a few minor infractions. While I am not condoning what were some bad decisions and a lapse in good judgment on the part of the management responsible for failing to catch and correct the current quality problems and effectively institute immediate product recalls the fact is, not one person has fallen ill nor has anyone lost life or limb because of any of these products. So, why do you continue to try and compare this with the crisis of 1982? Johnson & Johnsons Chairman has apologized, he has publically taken full responsibility and has in fact taken all of the proper steps to effectively correct the product problems and admonish the management responsible for the mistakes they have made. What happened to the media that investigates the real stories and gets the facts straight before they rake a person over the coals? Will you all not be satisfied until J&J gets rid of thousands of jobs because it has to stop production of most of their vital product lines? Will you all be satisfied when millions of children are suffering without products that make their lives pain free? Why is it that we never see any articles of late applauding the millions lives Johnson & Johnson products save and make better every day? I am an employee (Administrative Assistant) of Johnson & Johnson for 30 years. I, and thousands of my fellow employees, work very hard every day to promote the fine reputation of our company. We adhere to the very core Credo values of this corporation and voluntarily practice and work at measures which assure quality and safety. I take umbrage at the insinuations that we do not care about the efficacy of our products. I am also a consumer who has a child and dozens of nieces, nephews and family members who currently use and trust J&J products.

Johnson & Johnson CEO Bill Weldon's painful year http://money.cnn.com/2010/09/06/news/companies/J_and_J_Bill_Weldon_Bad_Year.fortune/index.ht m