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This article is an excerpt from Barron’s 10 favorite stocks for 2022, published on Dec. 17. To see the full list, click here.
Johnson & Johnson
is shaking off its stodgy image as it moves to develop a broad and underappreciated drug portfolio and spin off its consumer business.
The stock, now priced around $173, trades for a reasonable 17 times projected 2022 earnings of $10.38 a share and has a secure 2.5% dividend yield.
The world’s largest healthcare company recently spent a day highlighting opportunities among its existing drugs and its pipeline. These include Darzalex for multiple myeloma, Tremfya for psoriasis, and Rybrevant for lung cancer.
Johnson & Johnson (ticker: JNJ) aims to expand its pharmaceutical sales by 5% annually, to $60 billion, by 2025 and have 13 drugs with annual sales of $1 billion or more.
Some analysts came away impressed. Citi Research’s Joanne Wuensch lauded the “breadth and depth” of the drug portfolio. She has a Buy rating and $192 price target. J&J is also a big producer of medical devices.
The spinoff of the consumer products business, which includes Tylenol, Listerine, and Band-Aids, may not add a lot of value, however. And the company’s potential legal liability for talc and opioids remains a risk.
Some investors would like to see Johnson & Johnson ramp up a small buyback program, given its earnings power and conservative balance sheet. J&J boasts one of only two triple-A credit ratings among U.S. corporations.
(MSFT) has the other.