I do not paint a portrait to look like the subject, rather does the person grow to look like his portrait. - Salvador Dali
Johnson & Johnson (NYSE:JNJ), the worlds biggest pharmaceutical company by market cap, has enjoyed a great end to the year after its stock hit a fresh 2019 high of $147.84 in the previous week. Despite the recent litigation, the company is well positioned to continue growing thanks to its impressive pharmaceutical portfolio.
Most recently, the company has faced legal headwinds in the context of its alleged involvement in the opioid crisis. However, the latest test results released by the company show that J&Js baby powder did not contain asbestos. Previously, the U.S. Food and Drug Administration studies showed that the product contained the material.
The tests that were conducted are part of a large-scale effort by J&J to prove the safety of its widely used consumer product after the test by the FDA prompted J&J to undertake a nationwide recall of one lot of Johnsons Baby Powder in October.
A crisis involving baby powder didnt stop the banking titan Barclays to upgrade the JNJ stock from Equal Weight to Overweight.
In our view, litigation concerns are more than priced in and the risk/reward is attractive. We think J&J checks a lot of boxes heading into 2020, leaving risk/reward skewed to the upside. said Kristen Stewart, an analyst at Barclays.
Furthermore, the bank raised the price target to $173. The stock closed yesterday's trading session at $145.30.
This is the second time J&Js stock was upgraded in one week. Previously, Morgan Stanley analyst David Lewis made the same upgrade - from Equal Weight to Overweight, describing the companys stock as an attractive buying opportunity.
Out of 19 analysts covering Johnson & Johnson, 13 have upgraded the stock to either Buy or Overweight.
The upgrades didnt surprise many as the after the company reported in October that Q3 earnings and revenue beat estimates, thanks to growing sales of cancer and other prescription drugs, regardless of multi-million-dollar legal issues the company.
The pharmaceutical giant reported adjusted earnings of $2.12 per share, beating the expected $2.01 per share. The reported revenue was $20.73, again higher than the expected $20.07 billion. Overall, the companys three main components reported better-than-expected results.
Technically, the price is trading just below the all-time high of $148.99, printed in December 2018. The stock has been rallying since the Q3 earnings report was released on October 23, a day after the stock printed a 9-month low of $126.10. In around two months time, JNJ has managed to increase its market cap by around 15%.
The price action is supported by the horizontal support near the $145 mark, the previous 2019 high, and $141.50 where the broken descending trend line that connects two previous lower highs sits.
If the bulls continue to move the price higher, the initial target is the zone around the $150 mark where the 127.2% Fibonacci extensions of the June 19-October 19 correction lower lie. Overall, any move above $149 will mark a new all-time high for shares of JNJ.
As I mentioned in the Lead-Lag Report, the US stock market is well-positioned to continue rising in 2020, hence a future upside is a strong possibility for a healthy businesses such as Johnson & Johnson.
Arguably the biggest strength of the company is portfolio diversification. JNJ continues to impress with its performance in the areas of oncology and immunology, where its products such as Imbruvica, Stelara and Tremfya continue to yield profits. For instance, Tremfyas portfolio increased as much as 69% in the third quarter.
I wouldnt be surprised if the company goes aggressive on the expansion front. It is expected that the growth in the pharmaceutical sector should further pick up in 2020, which should benefit the company given the historical correlation between J&J's stock and pharma growth.
Johnson & Johnson finds itself in a great financial shape as its operations in the healthcare industry are unrivaled. Thanks to the diversified portfolio, especially within the oncology and immunology fields, shares of Johnson & Johnson appear to be a solid investment option as the bulls look determined to push the price north of $150.
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Johnson & Johnson: The Pharma Giant That Continues To Grow - Seeking Alpha
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