Wednesday, January 07, 2009
(Cont'd from above)...

Jim (cont'd):    Now we won’t know if the stimulus will work.. but the longer that it takes to pass… the worse things will get, and unemployment could hit 10%. When that happens you have to own some recession proof stocks. You need recession proof insurance… and I don’t think that it gets more recession proof that Tylenol… than Band-Aids… I mean look at some of this stuff… I mean, come on, you think that people aren’t taking this left and this right with this market (Jim held up a bottle of Mylanta)… Baby Powder, drugs, medical devices. What is not to like about JNJ? It’s got a strong balance sheet, more than $15 billion in cash, one of the best drug pipelines in the business. Does anyone really think that there is a smarter drug management than JNJ. Remember, this is the only company that actually took advantage of the markets meltdown to buy beaten up stocks. It made ultra cheap acquisitions at the bottom to help it grow its pipeline. Now what it ended up doing by the way… is two shot gun marriages to breast implant maker Mentor… which it got for $1.2 billion… and Omrix a biosurgical company that it snapped up for $38 million… oh, come on, we know JNJ is loved.. it is beloved by the king… by Warren Buffett. And believe me that matters, as Buffet is still totally revered by investors… especially those who watch Squawk Box… Berkshire Hathaway owns 61.8 million shares of JNJ… the last two time that Buffett bought this one, it was trading higher than it is now. Berkshire just bought 200,000 shares the 4th quarter 2007, JNJ was trading between $59 and $65... and it bought before that it bought 8.6 million in the 3rd quarter of 2007... when Johnson and Johnson was trading it even higher. Buffett bought between $63.55 and $68.75... so think about the joy of this.. if you buy JNJ here at $59 you are getting it for less than the oracle of Omaha… Buffett schadenfreude factor.

Now this is not the kind of stock that stays down for long. We got some great data here… especially not during a recession. Let me give you a little historical perspective. JNJ is down 18% from its high now. At it’s lowest in December it was off 17 points to 22%… Now if you bought JNJ when it was down this much… at any time over the last two decades, do you know that you have made money?… Empirical research… the more you know. The last time JNJ was down this much on a percentage basis happened to be in April of 2002 when the stock dropped from $65 to as low as $40, that is a 38% drop. Since then the stock has spent a lot of time in $60’s before peaking at $72... and the most recent pullback. Before that let’s go back to November of 1999 the stock went from $52 to $33, 33% drop… and then zoomed back to $65. I can keep going all the way back to JNJ’s big fall back in 1991... but you get the point. You buy this stock on weakness. Doesn’t matter if the economy is strong or weak, you buy it.

Now, that’s the stock so let’s talk company. 2009 JNJ’s earnings will be driven by cost cutting… more than sales growth… because it is losing patent protection on two of it’s biggest drugs… Resperatol, that is anti-psychotic… and Toplomax, that is anti-epileptic drug, also works for depression… but the down side is… I think… priced in the stock. That is why it is at $59, beside the sector rotation. Now, as for the upside it’s pharma division JNJ has a plan to cut costs by 5% annually… that does matter. It’s pipeline is one of the strongest in the industry. Peak sales for four of it’s leading drug candidates estimated to be $6 billion… It’s gotta another 10 drugs in late stage development… peak sales of maybe $7 billion… It’s completed most of its phase 3 trials for the 4 big ones… JNJ can slash costs here without sacrificing growth…It ’s got a great medical technology business, that is growing strong. It’s got sales 9% last quarter… and 12% if you don’t count stints. Thanks to the growth in international markets. It’s got a great diabetes care franchise. A great minimally invasive surgery product franchise… certainly better than Intuitive Surgical which reported at the close… it looks pretty monster ugly… I told you to avoid that one. Finally, JNJ consumer products division is in great shape. And that is what we always think of when we think of JNJ… new products, plenty of cost cutting to come from Pfizer's consumer product business, which they bought…. JNJ just bought the leading moisturizer in China… and that’s likely to be just the beginning of it’s investments in communist… but capitalist friend Peoples Republic…The international opportunities here… especially in China.. are enormous. And you probably didn’t know this but just like the wheels of capitalism are greased by the desire to have wrinkle free skin… it looks like the wheels of Communist China are greased by the desire to have smooth skin… Plus, if you believe as I do that the dollar is going to take a beating this year courtesy of a huge sell off in U.S. Bonds… by the Chinese… as well as rate cuts… from the rest of the world central banks. Then JNJ will benefit enormously as it’s overseas sales translate into more dollars.

How about the dividend?… JNJ… look you know… you never see this stock with a big dividend… JNJ 3.1 yield may not look all that notoriously B.I.G… as in juicy… oh man, I have to get to the premier tonight. The Notorious premier… You have got to remember that this company is one of the most consistent dividend raisers out there. JNJ upped it’s dividend by 11% in 2008... 46 consecutive year dividend increase. How much do we worship at the alter of dividends?… And the notorious B.I.G. .. and I am working two packing tomorrow, that’s it, I don’t want any West coast, East coast thing going on here… Now, in the last 20 years there have only been 3 times that the stock has fallen so hard, that it’s yield reached 3%. First it happened in May of 1988.. hey, how about you being up 16% in 5 months if you bought it when it was this high…. how about when it reached it again in 1993... you bought you made 22% in 5 months… how about the third time… May of 1994 you gotta a 31% gain in 8 months… every time JNJ’s yield hit’s a notoriously B.I.G. 3%… you would have made big money. I don’t think it is going to be any different this time. Right now, JNJ is trading 13 times earnings… you never see this that cheap… it is below it’s long term average of 16 to 17 times earnings…that’s wrong… you will catch up with the averages.

Here is the bottom line...

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The Bottom Line!:     Johnson & Johnson (JNJ*) is another Dow All-Star in what my… what is now becoming a now diversified of All-Stars… I think that it is exactly the kind of stock you want to own in a recession. And you are getting it at a great price… cheaper than what Cramer idol Warren Buffett last paid for it. I can see JNJ going back over $70.… easy.

Whether Obama’s Stimulus Comes Through Or Not, Consider JNJ A Dow All-Star in 2009.  Stimulus or not JNJ might be just the Band-Aid we need… it is my third… it is my third Dow All-Star...

[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    WuXi Pharmaceuticals has a big collaboration with Johnson & Johnson, Pfizer, and all the other big names in pharma's. And with all the money that China is pumping into their economy and an unprecedented level, they want to be a world leader, they want to showcase these high tech companies, like WuXi, with the great fundamentals that they have. Especially against their competitors like Covance and stuff, what is your long term on that?

Jim:    This thesis is killing me. Because if you think that China is ready to rumble… if you think the Chinese are going to do that forced stimulation plan that I think they are going to have. The last thing you want to have is a defensive stock over in China… you want to be roaring with the Chinese… you gotta be in cyclicals, that is what is happening over there… I like.. I never like to be in the face of our fabulous callers. But that idea to buy WX… I think is not a good idea… and I do not like the pin action.

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Q:    I am looking at Schering Plough, it closed today at $17.72. Should I buy?

Jim:    I like Schering, I think Schering has clearly bottomed… now remember we had that fiasco… slash diabolical… slash holy cow what do we do… when we had all the problems with one drug that Schering Plough had… Vytorin… I think that has now passed. I have always wanted to Fred Hasten to the show… I see that he is starting to go to other day time show… severely disappointing to Cramer liker Schering Plough… but I do like the dividend yielding stocks in the Dow… not just the Dow… all over the S&P… more than I like Schering Plough’s meager dividend.

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Q:    A quick question about Savient Pharmaceuticals, I know that they have got a recent proprietary review for their drug. What do you think, do the benefits out way the risks? Is it a good time to jump in?

Jim:    No, no. We made Savient one of our speculative stocks a while ago, it got some drug approvals… and we said take it off the table… we don’t want to hear it again… and I am sickened by that. When we have all of these Pfizer's and Lilly’s selling with these monster notoriously B.I.G. yields… why must we mess with spec… we can mess with the best.


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