Johnson & Johnson ranks as the world’s largest and most diverse health-care company. The company comprises three divisions: pharmaceutical, medical devices and diagnostics, and consumer. Chances are you currently have some of their products in your home:
In Chapter 8 of The Intelligent Investor, Benjamin Graham, the father of value investing, describes the concept of Margin of Safety:
Any investor, who’s main goal is to preserve capital, should seek, in all his or her investments, a significant difference between the current value of a business and the price in which the business can be bought. This insures protection in case of an unfavorable event and to maximize the investment return if the analysis is confirmed.
In the words of his disciple, Warren Buffett: “Never depend on a good sale. Get a purchase price so attractive that even a mediocre sale will produce good results.
Although given the title of “Dividend King” we must be vigilant in maintaining price discipline. We typically purchase operating companies at 8-10 times Cash Flow. However, a stock like this warrants special attention due to its size and dominance of their market. Chances are no other company will be able to purchase this behemoth of a company, therefore we will put a value on the business of 30 times Cash Flow.
Conclusion & Valuation
JNJ has consistent rising dividends, strong cash flow, and very low debt!
I am buying up to $69.60 and not a penny more!