Why I like J&J after the run it's had

The market's run is relentless, so better find solid old growth stocks that aren't too expensive.

By Jim Cramer Mar 27, 2013 8:54AM

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I've been Arrow Up Nicholas Monu iStock Exclusive Getty Imagesbombarded with questions about Johnson & Johnson (JNJ), which we bought for Action Alerts PLUS Tuesday, and whether it's too expensive to buy up here. People really think we are off our minds scooping some up after the run this stock has had.


Frankly, the answer is no, not at all. In fact, J&J is one of the few of these old growth stocks that isn't too expensive. That's because the company has under-earned for years under the empty-suited William Weldon, the former CEO -- who, while loved by all, produced nothing of lasting value at Johnson & Johnson except lawsuits as far as the eye can see.


The new executive, Alex Gorsky, has carte blanche to clean up the company, to take out the layers of fat that we all know exist or to split up J&J into multiple businesses, including slower-growth health and beauty, faster-growth pharma and pretty good growth devices. The values that could be unlocked here are legion.


But that's not the point of what people are thinking about when they blanch at paying these prices. They are thinking that we have companies in the food business, in the drug business and in the health-and-beauty business that are now selling at triple their current growth rate -- as is the case with Johnson & Johnson. They're thinking that, if J&J has no possibility of being broken up -- or, alas, given all of the recalls, let's just say "reformed" -- it indeed doesn't deserve to sell at these prices.


But, as they say in Unforgiven, "deserves" has nothing to do with metaphors, or with the price-to-earnings ratio of Johnson & Johnson or any of the other rocket ships, they be Hershey (HSY) or Ely Lilly (LLY) or Colgate (CL) or Clorox (CLX).


Yes, a handful of tech stocks may have captured the public's fancy, or anger. But let me tell you that, for my friends who are portfolio managers, all they can talk about are the newfound ranges for these types of stocks. At any other time, ever, no one would pay these prices for these slow rates of growth.

I hear all sorts of reasons to explain why they are going higher. There's the need for dividend -- and, like J&J, they still have a meaningful one vs. bonds, at 3%. There's the need to have stable growth in a world where Europe's shooting itself in the foot, if not the head, and China may be faltering once again. There's the desire to be in a name with AAA balance-sheet equity, which most certainly describes J&J. There's the possibility of a developing equity shortage in some of these names because they have bought back so much stock. Then there's the tax-advantaged nature of stocks like J&J, because ordinary income rates have gone up so much more than dividend and capital-gains rates.


Perhaps all of these, combined, have allowed buyers to take these stocks up much more than they traditionally have done. Plus, even as it is never smart to sell a stock short on the basis of valuation, many hedge funds have been betting against these stocks because the quarters are not supposed to be that strong, with no real revenue growth and possible guide-downs because of a strong dollar.


Alas, the companies don't report for a few more weeks, and in the interim the buyers just won't quit.


So now the search is on for the stocks in these sectors that still can make something of themselves, or those that could be taken over, à la Heinz (HNZ). To just own some that have moved up and up is to risk a sudden decline, but it is fair to say that each decline has just been met with more buying.


It is a once-in-a-lifetime move, breathtaking in its relentlessness, and every single time I have tried to call the top it has confounded me. So make your peace, find your J&Js and go forward.

Cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long JNJ.

 

 

 

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23Comments
Mar 27, 2013 10:26AM
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Yeah....90 points down.....We have had better days.

We will wait to get the FULL report from CGT,..He has an inside track.

I actually expected a little upside or flat today...?

Mar 27, 2013 4:25PM
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Dogs, Horses and Hogs (Pigs)....Ahh, what an arguement. Or a dicussion topic...

Good thing not started on too early today...

MARKETS ARE COMING AROUND.....WELL I'll be a "monkey uncle"..Probably am..?

 

We have raised and Bred...Dogs and Horses..."Specific Breeds", but that's enough; Don't want to give ABS any more hints..

We have also had different breeds of both animals or Part Breds..

All breeds of Domestic Animals have slightly different or even distinct forms of Intelligence.

Pigs are pigs or hogs...They vary also.

Most of these animals can mirror or learn from their Handlers...Some others the same..

All three of the above are fairly intelligent in their own ways...

So are Dolphins, Porps or Certain Whales.?

 

Dogs and Horses can be trained very well, and can think or EVEN REASON on their own..

Convential wisdom says NO..But we have lived with them and could almost do case studies over 40-45 years....Pigs are exceptional and are thinking and instinctive animals, very sharp.

Yes Johnny and Ed's arguement lives on....Way beyond them.

Mar 27, 2013 10:41AM
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If it oinks or moos, I usually like it too....?

 

Silver and Oil down..

Gold and Dollar up...

Strange decoupling  of a sort...?

I smell "safe haven buying" sneaking around...??

Very strangely, our FMV....Value of Portfolios...Has remained constant today. Even with a 100 point drop..

I think we will recover today after some profit taking, and buying of safer assets..IMO

Still looking for a "flat day" or even slight upside?....Waiting for report....Only neg 60 now ??

Mar 27, 2013 10:14AM
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We have or have had some defensive stocks...

They are decent in downturns and very good in recoveries usually...?

One that always amazed me is McDonalds....Who would have thunk it.?

Walgreens is one of our favorites.

Mar 27, 2013 10:10AM
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When we raised a few hogs....They are very smart by the way..!!

 

About 2 weeks (more or less) before they left.....We would feed them into a large Horse/stock trailer.

They were extremely wary the first few days..

Started by having trailer in pen or their pasture...Fed them closer and closer to open door and ramp.

By the time we were feeding them up in the front, near the manger and tack box...It was easy.

Slammed the back door shut, brought the truck into the pen and off to the Sale Barn..

They were pissed and squealled all the way to Market....Just like in the poem.

Like I said they were very smart...

Mar 27, 2013 9:54AM
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I think the reason JJimmy likes J&J is obvious...What you tink. ??

 

Wonder if Heinz Soups....Will come out with one of Warren's favorite recipes or flavors.??

Mar 27, 2013 9:21AM
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Hi,  Jim !

~  The  above  six  Co. names  are  of  very-very-very  defensive  nature.

~  We  can  go  into  great  recession  #2,  if  there  is  a  run  on  the  banks,  and  EU's  condition  worsens,  which  could  very  well,  take  the  global  economy  DOWN.

~ Consumer  confidence  and  retail  sales,  nothing  to  brag  about, either.

~ If  we,  to  enter  recession  in  the  next  3 to 6  months,  the  Market's  sell-off  could  start  today.

Mar 27, 2013 5:25PM
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Gave it a run, fell a little short...Oh well, that S&P record seems so close and yet so far; remember, its nothing but a number, as soon as we get there, if we do, the bad guys will sell off...Very likely...Last day of the quarter tomorrow, will not be a piece of cake.
Mar 27, 2013 12:10PM
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The flavor of the week has been Cyprus of course, why? There has to be something for these manipulators to justify their actions, not that they really have to so, we opened up in the toilet; things have improved some but better believe we are not out of the water yet. Be cautious, they will call to accelerate the selling once again anytime this afternoon....Still four long hours to go and anything can happen...the S&P is finding resistance every time it gets close to its all time record...Oh well, we will see how things develop...More later...Again, be careful, because we are down only 38 points doesn't mean we cant go back down close to triple digits, plenty of crooks today.
Mar 27, 2013 9:38AM
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Had a friend some time ago who was a hog farmer.  When it was time to reap some profits he would lay down a little grain and entice those headed for the slaughter house into a smaller pen where they were more easily controlled.  I am very sincere in my concern so many of us have been herded into this stock market because of the enticement and of being the only game in town.  As individuals we all believe we can see a pattern, sell, and retain our profits.  Problem is we all believe this to be true.  What happens if we have an event like we are seeing in Cyprus or even another 9/11 for that matter where the market is closed for an extended period of time.  Once we are unable to access our accounts we are in a complete and totally vulnerable position. I think a rainy day mentality must be adopted.  This concentration of so much into one relatively vulnerable framework is not good in my opinion.  I think common sense dictates we have a liquidity goal now more than ever.  I am buying gold coins a few at a time now.  Gold for all the naysayers is still very saleable and easy to possess.  JMHO
Mar 27, 2013 10:22AM
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Steve....You have to ask the Vietnamese about smoked or baked Dog...They and a few other SE Asian Nations enjoyed them in more ways then pets...

I saw them in big cooking pots....It was ghastly..

 

Guess the Chinese like Cats..To each his own, we are somewhat luckier, unless you've had possum.

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