Uncertainty At Johnson & Johnson Creates Risk

At minimum, current shareholders should hold Johnson & Johnson (JNJ) until the next earnings release; interested investors should initiate a position this month. This is currently the most popular candidate for a short in the big pharma sector; this stock could be very effective for a short squeeze as October and third quarter comes to a close. Johnson & Johnson’s currently facing headwinds as it discontinued clinical trials for its Alzheimer’s product and continues to enter settlements across the US due to claims that it promoted Risperdal for non-approved uses. But, Johnson & Johnson is having successful clinical trials for its diabetes drug, investing in four global innovation centers, and bolstering its rheumatoid arthritis franchise.

Pfizer (PFE), Novartis (NVS), Merck (MRK) and Abbott Laboratories (ABT) are the major pharmaceuticals that are most comparable to Johnson & Johnson. Pfizer and Johnson & Johnson’s price is around 22 times earnings; Merck is closer to 21 times earnings while Abbott’s price is closer to 23 times earnings. Each of these pharmas’ price-to-sales ratios are around 2.9. Johnson & Johnson’s EPS is $3.14; Novartis’s $3.54 EPS is the highest among these pharmas. Johnson & Johnson’s 27.1% EPS decline and 4% sales growth over the past 5 years is the worst among these pharmas. To continue reading, click here.