Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Johnson & Johnson making Money?

Big Pharma is unpopular but profitable these days. For instance, Johnson & Johnson (NYSE: JNJ) reported a quarterly gross profit of $13.622 billion on 30 June 2019.

Yet J&J is at the center of the opioid scandal in the United States. John & Johnson could pay $20.4 million to settle an opioid-related lawsuit in Ohio, Business Insider reports. In detail, Johnson & Johnson plans to pay a $10 million settlement, $5 million in legal fees, and $5.4 million in charitable donations to make the case go away.

The lawsuit alleges Johnson & Johnson misrepresented the potential dangers from opioid pain killers it sold in rural areas. A court scheduled trial in the case to begin on 21 October 2019. Hence, Johnson & Johnson will avoid bad publicity from the case.

Johnson & Johnson is making a Lot of Money

Currently, Johnson & Johnson is making a lot of money. The drug and consumer products company reported a quarterly operating income of $5.353 billion and a quarterly net income of $5.607 billion on 30 June 2019.

Johnson & Johnson made that income on quarterly revenues of $20.262 billion. Hence, pharmaceuticals are a lucrative business.

In addition, J&J proves pharmaceuticals are a cash-rich business. Johnson & Johnson had an operating cash flow of $5.948 billion and a free cash flow of $5.111 billion on 30 June 2019.

Meanwhile, Johnson & Johnson had $14.376 billion in cash and equivalents and $902 million in short-term investments on 30 June 2019. Thus, Johnson & Johnson had $15.278 billion in cash at the end of last quarter.

Given these numbers, I think Johnson & Johnson could settle dozens of opioid lawsuits and make piles of money. Thus, I consider Johnson & Johnson a company with a high margin of safety because of all the cash it generates.

Is Johnson & Johnson a Value Investment?

In the first analysis, Johnson & Johnson has two value-investment attributes. First, it is a pharmaceutical maker so J&J is an unpopular and unfashionable company in America. Second, J&J is a cash rich company.

But what other value does Johnson & Johnson have? Well, Johnson & Johnson is a diversified company in one of America’s fastest growing businesses healthcare.

In fact, you can describe Johnson & Johnson as three different companies. First, J&J manufactures a wide variety of consumer health products. Johnson & Johnson consumer health brands include BAND-AID, Listerine, Neosporin, and Johnson’s.

Second, the Johnson & Johnson Medical Devices Companies supply a wide variety of equipment to healthcare providers. J&J manufactures devices for Orthopedics, Surgery, Vision, and Interventional Solutions.

Third, Johnson & Johnson owns the Janssen Pharmaceutical Companies. The specialties at Janssen include drugs for Cardiovascular & Metabolism problems, Immunology, Infectious Diseases & Vaccines, Neuroscience, Oncology and Pulmonary Hypertension. Hence, J&J offers diversification in healthcare.

Is Johnson & Johnson a Growth Stock?

Healthcare is one of the fastest growing segments of the American economy. For instance, the Centers for Medicare & Medicaid Services (CMS) projects U.S. healthcare spending will grow by 5.5% a year between 2019 and 2027.

Furthermore, the CMS estimates U.S. healthcare spending could grow to $6 trillion by 2027. Interestingly, the CMS projects healthcare spending will compose 19.4% of the US Gross Domestic Product (GDP) by 2027. The CMS estimates healthcare spending accounted for 17.9% of the American GDP in 2017.

Therefore, healthcare is one of America’s largest and fastest growing businesses. Johnson & Johnson operates three different healthcare businesses. However, Stockrow gave J&J a mediocre revenue growth rate of 1.05% for the quarter ending on 30 June 2019.

In addition, Johnson & Johnson’s revenue growth shrank by 3.88% in the quarter ending on 31 March 2019. Hence you can calculate that J&J’s revenues grew by 4.93% in the last quarter.

Single Payer Healthcare is Coming to America

Moreover, government is increasingly paying for America’s healthcare. The CMS estimates U.S. government spending on healthcare is growing at a rate of 2% a year. In addition, the CMS claims government will pay for 47% of American healthcare by 2027.

Therefore, America could have single-payer health insurance and government run healthcare in a decade. Additionally, three of the four front runners in the Democratic presidential primary endorse Medicare for All (single-payer health insurance).

In detail, the September 2019 Emerson Poll names Joe Biden (D-Delaware), U.S. Senator Liz Warren (D-Massachusetts), U.S. Senator Bernie Sanders (I-Vermont) and Andrew Yang (D-New York) as the Democratic front runners. Yang, Sanders, and Warren all support Medicare for All. Medicare for All is a euphemism for single-payer health insurance.

I think Medicare for All will be good for Johnson & Johnson because it could dramatically expand J&J’s customer base in American. Theoretically, Medicare for All could pay for healthcare for every citizen; and legal resident, of the United States.

Thus, Medicare for All could pay for the use of Johnson & Johnson products by 329.065 million Americans. Worldometers estimates the US population was 329.065 million in September 2019.

How Johnson & Johnson could profit from an Aging America

Beyond, Medicare for All there is America’s aging, and often unhealthy population. The Janssen Pharmaceutical Companies’ specialties include drugs for age-related diseases.

Some Janssen product lines include drugs for cardiovascular (heart) and metabolic disease (such as diabetes), Pulmonary Hypertension (high blood pressure), and oncology (cancer treatment). Those are all age-related diseases.

Meanwhile, there were 52 million Americans over 65 or 13% of the U.S. population, the Population Research Bureau (PRB) estimates. Furthermore, the PRB estimates America’s elderly population could grow to 95 million or 23% of the national population by 2060.

How Johnson & Johnson can cash in on Medicare

To J&J’s benefit, Uncle Sam already pays for most of those people’s healthcare.

The Kaiser Family Foundation estimates 59.869 million Americans participate in Medicare. Medicare is America’s single-payer health insurance plan for senior citizens and the disabled. All Americans over 65 can participate in Medicare if they want.

Plus, 19.861 million Americans participate in private Medicare Advantage plans that can pay for 100% of healthcare expenses, the FFF estimates. In Medicare Advantage, a private insurer covers most healthcare costs but the federal government pays the premiums. Propublica claims senior citizens; and President Donald J. Trump (R-New York), love Medicare Advantage because it makes healthcare cheap and abundant for older Americans.  

Hence, Johnson & Johnson has a growing market for many of its products. Additionally, the government will pick up many of its customers’ tabs. Thus, I think J&J could be a cash-rich company and a growth stock for decades to come.

Appealingly, many politicians want to use tax money to finance more growth for Johnson & Johnson. Plus, Medicare cuts or a funding crisis are unlikely given Senior citizens’ political clout in America.

The US Census Bureau estimates 66.1% of Americans over 65 voted in the 2018 midterm elections. Given that number, I believe politicians will expand Medicare and raise Medicare taxes to keep older voters happy.

Is Johnson & Johnson a Good Dividend Stock?

I think Johnson & Johnson (NYSE: JNJ) is a good dividend stock because it paid a 95₵ quarterly dividend on 26 August 2019 and a $131.75 share price on 11 October 2019.

Moreover, J&J’s dividend rose by 5₵ in 2019. Johnson & Johnson paid 90₵ on 25 February 2019 and 95₵ on 24 May 2019.

Plus, credits J&J with an astounding 56 years of dividend growth. In detail, a share of JNJ offered a 2.88% dividend yield, an annualized payout of $3.80, and a payout ratio of 46.7% on 10 October 2019.

If you are looking for a safe dividend, income, and growth stock with some value characteristics. I strongly advise that you investigate Johnson & Johnson. I think J&J is in for years of growth because of America’s demographics and political climate.