We recently published a list of 7 Cheap Blue Chip Stocks to Invest in Now. In this article, we are going to take a look at where Johnson & Johnson (NYSE:JNJ) stands against other cheap blue chip stocks.
Should Investors Revisit the Idea of the S&P 500 Being a Low-Risk Investment?
The technology sector has been the highlight of the stock market. On September 23, Reuters reported that hedge funds bought US tech and media stocks at the fastest pace in the last 3 months, last week.
With the interest rates falling, industrial spending is expected to revive as the companies can now borrow at lower costs and upgrade their technology and other related products. These high borrowing trends within the businesses are expected to boost the earnings of the tech companies further.
However, as far as the consumer sentiment towards borrowing is concerned, it seems that the market demands more rate cuts before it starts borrowing. We discussed how the borrowing trends are expected to perform in 7 Cheap Beginner Stocks to Invest In. Here’s an excerpt from the article:
“The Federal Reserve has approved the interest rate cut of 50 basis points, which at least for the time being is turning out to be good for the stock market. The interest rate cut also means that businesses and consumers have received immediate relief, but is the public ready yet to jump out of their high inflation rate mindset?
According to a recent report by Reuters, even before the Fed announced a rate cut the financial markets had already begun making credit cheaper for consumers and businesses. Mortgage rates were slightly down, corporate bond yields were also cut, and day-to-day personal and auto loans were also eased. For instance, the average rate a person had to pay for a 30-year fixed home mortgage is 6% after decreasing 2 percentage points from a year ago. Moreover, as per Redfin, a real estate firm, the average median price of houses sold in the middle of September was $3,000 less than the all-time high prices in April and represented a 3% decrease year-over-year. A recent survey shows that while inflation has come down significantly during recent times, the public mood is still distracted due to the past two years of high inflation.”
Turning back to how investors might revisit their idea of S&P being a low-risk investment. This idea was pitched by Bill Nygren, the Chief Investment Officer at Oakmark Funds in a recent CNBC interview. His approach reflects a strategic shift as to how investors might view the S&P 500 and mega-cap stocks in the current market situation. He pointed out that while the index has traditionally been viewed as a diversified index, in reality, it is just a bet on a few large technology companies. Currently, around half of the S&P 500 is dominated by some 25 large tech names, which essentially diminishes its original diversification.
Bill Nygren, emphasized the importance of having a more diversified portfolio beyond just mega-cap stocks. He believes that diversification of the portfolio provides better risk-adjusted returns compared to relying solely on a few big companies. We have also discussed Matt Stucky, Northwestern Mutual Wealth Management’s chief equities portfolio manager, talking about a similar strategy in 13 Most Undervalued Blue Chip Stocks To Buy According To Analysts.
The investment strategy that Nygren is vouching for suggests that the current market scenario where investors are favoring positive momentum stocks can lead to missed opportunities in other undervalued sectors such as financials and energy. He believes that the potential lucrativeness of the Tech sector has overcrowded the space creating opportunity in other sectors.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A smiling baby with an array of baby care products in the foreground.
Johnson & Johnson (NYSE:JNJ)
Forward P/E Ratio: 16.42
Earnings Growth This Year: 1.10%
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ) is one the leaders when it comes to major healthcare companies. It mainly focuses on Innovative Medicine and MedTech and has developed treatments for various cancer, immune system disorders, brain-related, heart and lungs related diseases.
The company has numerous strategic advantages originating from its history of innovation and robust fundamentals to a diversified product portfolio. The company mentions that it has more than 25 products that contribute more than $1 billion in sales for the company. Moreover, Johnson & Johnson (NYSE:JNJ) generates most of its revenue from products that rank within the top two positions in their market category.
On top of this, the company is also undervalued with a forward price-to-earnings ratio of 16, a 25% discount to its sector, and earnings expected to grow by 1% during the year. Thereby making it one of the cheap blue chip stocks to invest in now.
If we look at the most recent quarter results, which is the fiscal second quarter of 2024, we see that Johnson & Johnson (NYSE:JNJ) has grown its international sales by 7.1% year-over-year. Whereas, its adjusted earnings per share has increased 10.2% during the same time.
The prospect of growth for the company is even brighter. Its psoriasis and ulcerative colitis drug Tremfya was recently approved by the FDA, indicating a strong addition to its product portfolio.
Overall, JNJ ranks 2nd on our list of 7 cheap blue chip stocks to invest in now. While we acknowledge the potential of JNJ to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.