Summary
JNJ shares were doing well this year as investors bought Big Pharma, then got hit on a Reuters article.
I have reviewed JNJ's product liability issues before and already was avoiding the stock in part due to them.
My updated analysis is that even though JNJ is doing very nicely operationally, just the Baby Powder (asbestos) issue is enough to make it unappealing for new money investment.
Other products across JNJ's business lines are also subjects of litigation; thus I fear the downside risk both financially and reputationally.
So, while I'd like to buy this dip, I'm staying on the sidelines.
Background - my recent views on J&J (JNJ)
My past two JNJ articles reflected my changing views of the deterioration in its non-pharma divisions, namely devices and (iconic) consumer products. On Oct. 19, 2017, I wrote J&J: Unattractive. JNJ was around $140 then versus around $130 today. Subsequently, on April 19, I wrote Johnson & Johnson: Going The Way Of IBM?; JNJ was around $128 then.
Perhaps most relevant is the article I wrote on Sept. 24, 2017, J&J: Thoughts On Sirukumab And Other Problems. This article went into legal issues; two of the summary bullet points said:
- However, repeated guilty pleas for corporate misbehavior challenge that image; several large or even massive punitive judgments in product liability suits may put the credit rating at risk.
- This article documents various financial and reputational risks to the stock.
With regard to talc and asbestos, the catalyst for the recent 10% drop in JNJ's share price, I reviewed the finding of talc in ovarian cancer tissue and summarized my financial analysis in this section of the article as follows:
