Summary
Johnson & Johnson has seen harsh times as an old asbestos claim is playing up again.
Shares have been hit hard as this times it looks serious, with public outcry on the increase.
I doubt that this storm will pass very soon as litigation is a long and uncertain process.
Despite a recent pullback, shares remain more than fairly priced at this moment as the dip is not large enough for me to buy yet.
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Days ahead of Christmas, Johnson & Johnson (JNJ) finds itself in a real crisis related to the lingering concerns about asbestos in its baby powder products in the past. While judging the potential impact and costs of any outcome is impossible to do, truth of the matter is that the market seems to take this "attack" seriously. Even as a $50-billion pullback is very large, it does not automatically create compelling opportunities in my book.
About The Claims
For starters, the concerns about potential usage of asbestos in children products have been going on for quite a while, but they have come to the full forefront of investor's concern following a Reuters report. Shares lost 10% in reaction to the report, and some more in the days following, after the report claimed that the company knew about asbestos tainting talcum powder for decades. In fact, the report and documents included in the report, claim it dates back to 1971.
The company refutes the statement as lawyers are quick to point out that no asbestos can be found in the products and products are safe, disregarding the story as a conspiracy theory. The Reuters report claims that between 1971 and the early 2000s some tests revealed small amounts of asbestos in talc and finished powders, potentially opening up the road for thousands of lawsuits. The test results were actually not denied by Johnson & Johnson, but were regarded as outliers.
