Summary
- Johnson & Johnson is the largest healthcare company in the world and has a pretty diversified business.
- The company still has a competitive advantage, but lawsuits as well as declining brand name value can be a threat.
- Johnson & Johnson seems to be fairly valued if it can perform a little better than during the last decade, but there are more superior investments.
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In the last few years, I tried to modify my investment approach and the way how I am screening for stocks. In the past – and still in 2016, when I started writing for Seeking Alpha – I was mostly screening for stocks that appear undervalued by one or several metrics. And it is easy to search for companies that way: one can screen for a low price-earnings-ratio or for a low price-free-cash-flow-ratio. Or one can also screen for stocks that declined in the mid double digits or are trading close to the 52-week low although this is very dangerous as neither metric is telling us anything about the intrinsic value of a stock.
(Source: Pixabay)
This was a screening process, that focused on the stock price and the current valuation of a stock and only in a second step I looked at the fundamentals of the business. These days, I am starting my search from a completely different angle. I am screening for different metrics, which tell us a lot about the stability and consistency of the business and only in a second step I will look at the stock price and valuation of the asset. This process is much more difficult as we have to look at several metrics simultaneously and at a long timeframe (usually ten years) and it is therefore difficult to create some kind of search algorithm (at least I don’t have the necessary know-how to do that).
The companies that pass the screening are usually included in my marketplace watchlist. And of course, there are several companies that show up in the screening with very decent numbers and also high levels of consistency, but still don’t make it on my watchlist. One of these companies is Johnson & Johnson (JNJ) and I will use the company as an example to describe the criteria I use to screen for stocks and also present JNJ as an investment.
