Summary
- Johnson & Johnson is built to last with diverse revenue streams and strong competitive advantages in many of its markets.
- It has performed well both during the COVID-19 pandemic and in past market calamities.
- The company's shares are not cheap, but their durability and safety warrant the premium pricing.
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Source: Johnson & Johnson
Johnson & Johnson (JNJ) is built to last, making it a good investment in a diversified income-producing portfolio. The company has diverse revenue streams across different segments and geographies. Many of its products have moderate-to-strong durable competitive advantages, including premiere brand names and patent-protected medical technologies.
These structural advantages have allowed JNJ to perform well during the COVID-19 crisis. Similarly, it has performed well in past crises, such as during the dot-com bubble and the housing market collapses. In both cases, JNJ stock and its financial results showed remarkable resilience, insulating investors from a lot of the risk of these events. This safety is not "free": Investors pay a relative premium for JNJ shares compared to more volatile stocks, resulting in low dividend yields and a somewhat high P/E ratio.
In my view, JNJ is worth this premium both during these turbulent times and beyond.
Built to last
Johnson & Johnson is built to last, with diverse revenue streams and strong competitive advantages in many of its markets. The company earns about half of its revenue in the United States and about half in other global markets.
JNJ splits its revenue into three segments. Consumer health represents about one-sixth of sales. This segment includes health and beauty products marketed under a variety of well-known brand names, including Tylenol, Listerine, Aveeno, and Neutrogena. These strong brand names provide JNJ with a durable competitive advantage over many peers. For example, the company is able to charge higher prices, and earn better margins, for acetaminophen sold under the Tylenol brand name. International sales make up slightly more than half of its consumer health sales.
