Johnson & Johnson Stock: Is Now the Time to Sell?

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Until recently Johnson & Johnson (NYSE:JNJ) stock was the most conservative investment you could make in the drugs space.

It still is, but that’s no longer a compliment. There’s a lot more risk in it since it spun off its consumer business as Kenvue (NYSE:KVUE) on August 23.

Since then JNJ stock is down 5%, only slightly more than the iShares Biotechnology ETF (NASDAQ:IBB), which follows the whole industry. Kenvue is down 18%.

JNJ was the last of the big drug companies to spin off its steadily profitable, but slow growing, consumer entities to focus on finding new blockbuster drugs.

Can it work for shareholders? The jury is out.

What JNJ Stock Has

Johnson & Johnson is a smaller company than it was. Global layoffs preceded the spinoff, which is helping its numbers look better than they might.

Johnson & Johnson will announce earnings on Oct. 17 and the Kenvue spinoff means the numbers will be smaller. Analysts are looking for net income of $2.51 per share on revenue of $21 billion. The company regularly beats estimates, but just by single digits.

So far, the only thing the new JNJ has done since the spinoff is to change its logo, from script to block lettering.

It’s still selling the drugs it did before. These include immunosuppressants like Stelara, cancer drugs like Darzalex, and blood thinners like Xerelto.

It’s using lawyers to fight its patent cliff, stalling the introduction of a biosimilar from Amgen (NASDAQ:AMGN) so Stelara can keep generating big profits for another year.

JNJ is also big in the medical device business, and grew that by buying heart pump maker Abiomed last year. It’s looking for more deals like that, even though Abiomed has suffered its first recall under the new management.

What JNJ Lacks

What JNJ needs are new drugs.

Two years ago, it claimed it had 14 blockbusters awaiting approval. In August it won approval for Talvey, a drug to treat blood cancer.

But monoclonal antibodies and immune suppressants are old news. Even the company’s “novel therapies” follow along the same path.

Johnson & Johnson does have a semaglutide called Invokana, used to treat diabetes, and Mark Cuban’s Cost Plus Drugs has an agreement to sell it.

While Novo Nordisk’s (NYSE:NVO) Ozempic, another semaglutide developed for diabetes, has become a blockbuster as a weight loss drug, Invokana has not. This despite its Web site noting a 2-3% loss of weight when taking it.

The Bottom Line

Johnson & Johnson is a drug stock for conservative investors. Tipranks lists 14 analysts, only 5 of whom are telling clients to buy it.

Johnson & Johnson remains conservative, but that’s no longer a compliment. If you’re competing at the cutting edge of science, you can’t be a follower.

The last time I looked at the company, in 2022, I praised its dividend and called it safe. Without Kenvue, it’s less safe. The company is putting almost half its net income toward maintaining the dividend.

Despite the Kenvue spinoff, JNJ has yet to put its baby powder problems to rest. Courts have rejected the idea that it can spinoff its legal liabilities to limit damage to the larger company.

For that reason, I can’t recommend you buy JNJ stock today. There are just too many other, better drug stocks out there.

As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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