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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing

Companies / Healthcare Sector Aug 17, 2019 - 07:38 PM GMT

By: Nadeem_Walayat

Companies

We are currently galloping full speed along an exponential curve that unlike the neural nets of the 1990's, that promised a lot but delivered very little, this time it really looks like we are on the verge of AI success, not only that but it heralds changes in every aspect of our lives most of which we cannot even imagine today, hence the term the singularity is often used, the AI event horizon beyond which we cannot see.

My latest analysis in this series focuses on how to profit and capitalise on the unfolding machine intelligence driven mega-trend through investing in leveraged to AI Human Life Extension stocks.


The whole of this analysis including 4 sector stocks to invest in has first been made available to Patrons who support my work: Investing to Profit and Benefit from Human Life Extension AI Stocks and Technologies

So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.

JOHNSON AND JOHNSON - JNJ (Primary)

J&J founded in 1886 is the worlds largest Pharma company comprising of 3 divisions, Pharma 50% of sales, medical devices 33% and consumer products 17%. This drugs company basically profits from discovering new drugs that work, a task that is in large part trial in error of testing compounds either created or discovered to see if they actually do anything positive on human physiology and if so will the market pay a good premium for such a drug. The more compounds J&J can efficiently test then the greater potential for hitting another jackpot, which makes Pharma companies such as J&J well suited for AI applications. Presently the company has 30 Phase III trials in progress that typically could yield sales of $1 billion+ each. So AI freeing human discovery resources should see the number of drug trials in progress increase.

Is J&J developing AI and seeking to profit from the next pharma boom sector, human life extension?

Johnson and Johnson has been working in collaboration with IBM's Watson Health since 2015 where initial focus was on developing virtual assistants for improved support and rehabilitation of patients following surgeries and in management of their conditions given the state of AI. However as Watson reaches and surpasses human level intelligence then the focus will be the aforementioned objective of speeding up drug discovery exponentially through the use of IBM's emerging super intelligence. Though of course IBM is partnering with multiple life sciences companies as it seeks to leverage it's AI systems so likely J&J will be developing their own AI systems in large part based on what they learn from their partnership with IBM.

However, this is the mere tip of the ice-berg where J&J is concerned and it's potential innovations. For instance J&J had a dozen Innovation labs busy developing tech across the healthcare spectrum, that go far beyond the smart app patient monitors news stories that the press focus on.

Furthermore J&J through it's labs infrastructure has created several hubs for bioscience entrepreneurs to turn their ideas into practical startup applications that J&J will have a stake in. And given J&J's £20 billion cash mountain has ample resources to fund speculative partnerships with new startups encompassing ideas such as wearable medical tech, 3d printed body parts with several products already coming on stream such as IntuiTap, a J&J supported startup that invented a device that improves the way spinal taps are administered during surgery. And more JLAB centres are due to open around the world with the objective of turning ideas into reality and this is on top of acquiring small and medium cap stocks such as J&J's recent purchase of Auris Health, a surgical robotics firm for $3.4 billion.

Johnson and Johnson Financials

Current Price $139  
Market Cap $371bn  
Enterprise Value $388bn  
Total Cash $19.7bn  
Net Income $15.3bn  
P/E Ratio 25.8  
Forward P/E 15.2  
Dividend Yield 2.6%  
Sales Growth 6.6%  
Price to Sales Ratio (lower better) 4.26  
Price to Cash Flow Ratio (lower better) 15.64  
PEG Ratio (lower better) 2.52  
Debt to Equity (lower better) 51.01  
Stock Price 3 Year Change 24%  
Ratio to S&P 60%  

 

Johnson and Johnson is typical of a blue chip stock i.e. pays a healthy stable dividend of 2.6% but experiences a slow sales growth rate of just 6.6%. However, presently J&J's PE of 25 is high given its slow growth rate, so suggests not to accumulate right now, but is on a forward PE of 15.2, though I doubt it's reliable, instead probably nearer to 20. So basically J&J a sleeping giant that currently delivers about 10% return per annum whilst it waits for the likes of AI to deliver it's next series of block buster drugs and devices.

Another thing to mention is the risks of law suits which pharma stocks such as J&J tend to be prone to getting hit by from time to time, i.e. for asbestos found in talcum powder! And being blamed for america's opioid crisis.

Trend - J&J's trend is a lot more volatile than that of the S&P over the past 3 years, probably following bad news announcements of court cases for past drugs and products such as the recent stories of talcum powder of the 1970's causing cancer. However, overall the trend has been on a similar trend trajectory as the general stock market indices which suggests investors should take bad news events as an opportunity to accumulate at discounts that tend to eventually revert to trend.

Long-term Investing - Good news on the long-term front is that J&J does tend to closely match the S&P trend even though it does tend to under perform. For instance 10 years ago the stock was trading at about 40, compared to the last close of 139, so that is 250% gain over 10 years PLUS dividends. Which is a pretty good return for a long-term relatively low risk investment which J&J should continue to replicate.

Conclusion - J&J is a safe blue chip long-term stock that provides a healthy dividend with exposure to the unfolding AI mega-trend that will increasingly become critical to its business model of drugs discovery, patient monitoring devices, robotic body parts and surgical instruments. And even if it only replicates past performance, that still implies a a healthily return of 250% over 10 years.

The stock pays a healthy stable dividend of 2.6%, and as J&J attempts to capitalise on the AI driven human life extension megatrend it should be kept in mind for portfolio exposure. It's current valuation of PE 25 is expensive given it's history of snails pace revenue growth and I don't consider it's forward PE of 15 as reliable. Nevertheless it is a good stock to ride on future developments which given AI will be exponential. So J&J is one stock that's definitely remains in my portfolio and on my accumulate list.

The whole of this this analysis including 4 sector stocks to invest in to profit from AI driven Life Extension was first been made available to Patrons who support my work: Investing to Profit and Benefit from Human Life Extension AI Stocks and Technologies

  • Intro & Humanities Quest for Immortality
  • Extending Telomeres
  • Slowing Down the Ageing Process - Strength Training
  • Slowing Down the Ageing Process - Metformin
  • LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now!
  • Investing in Life Extending Pharma Stocks
  • Stock 1 - JNJ
  • Stock 2 - Roche
  • Stock 3 - Tertiary
  • Stock 4 - ETF
  • AI Stocks Investing Portfolio Update

So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.

Scheduled Analysis

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  • GBP/USD
  • EuroDollar Futures
  • Bitcoin Update
  • UK Housing market series
  • Machine Intelligence Investing stocks sub sector analysis
  • EUR/RUB

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Your mega-trends investing analyst

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2019 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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