Summary
JNJ plunged 10% on Friday on the news that the company was aware of the presence of asbestos in its baby powder for decades.
The liabilities may be huge but the key is to realize that this is a non-recurring downturn.
We witnessed a similar situation with the catastrophic accident of BP in 2010.
Johnson & Johnson (JNJ) plunged 10% on Friday on the news that the company was aware of the presence of asbestos in its baby powder for decades. The company denied it was aware of this fact but the market panicked, as there are almost 12,000 pending lawsuits related to alleged consumer harm from the long-term use of its baby powder. Nevertheless, in this article, I will analyze why the stock has become a great bargain after its recent plunge.
According to a report, a consulting lab informed Johnson & Johnson that its baby powder was contaminated with asbestos as early as 1957. Moreover, there were similar reports from other labs and even the scientists of Johnson & Johnson that mentioned the presence of asbestos in the baby powder. On the other hand, according to the same report, most internal reports of the company did not identify asbestos in the product. Nevertheless, as it became evident that the company was aware of this hazard, this is certainly a negative development for its pending lawsuits.
