Several years ago, during one of my journalistic endeavors, I scored an interview with one of my investing heroes, commodity trading legend Jim Rogers. I couldn't believe my good luck.
My assignment was to interview one famous trader, money manager or financial professional on a weekly basis. The editors wanted me to drill down into their methods, tactics and ideas for fresh, actionable ideas for our readers. While I knew Jim Rogers was a unique individual, I was taken aback and surprised at our interview, which he conducted while running on a treadmill.
Although Rogers was gracious and kind, he avoided my direct questions, answering me instead with broad generalities and stories. The one thing that he stressed again and again when asked for investment ideas was to simply look around -- in other words, invest in what you buy and what you see.
At the time I was disappointed with his answer, which I saw as a cop-out. However, I've learned to appreciate the wisdom of his words. By following this simple investment rule, I have discovered far more profitable opportunities and ideas than I ever would have expected.
In the search for the next profitable investment, I find it easy to miss giant, ubiquitous companies. But Rogers' suggestion brought into focus one company in particular -- a component of the Dow Jones Industrial Average, as a matter of fact, with a market cap of $250 billion. It was by observing what was around me that I discovered this dividend-paying dynamo of a health products company. I am willing to bet that all our readers have at least one of this company's products in their homes.
Fitch Ratings has given this company its coveted AAA debt rating with a stable outlook, meaning Fitch expects this company's broad-based business model to deliver improving operational and financial performance. In other words, it's a forward looking rating which couldn't be better for long term investors. The company I am referencing is the ubiquitous Johnson & Johnson (NYSE: JNJ).
Founded in New Jersey in 1886 by three brothers, Johnson & Johnson has grown into one of the largest companies in the world. It employs nearly 128,000 people across 275 operating companies, and its products are used on a daily basis by more than a billion consumers around the world.
Currently riding an astounding 51-year streak of dividend increases, JNJ now yields 2.9% on a 45% payout ratio. The company posted strong fourth-quarter and full-year sales numbers, up 4.5% and 6.1%, respectively, from the same periods in 2012. Excluding special items, fourth-quarter earnings per share (EPS) were $1.24, up 4.1%.
Although one might expect a huge company like Johnson & Johnson to rest on its laurels, given the success of its consumer and pharmaceutical products, nothing could be further from the truth. The company is constantly innovating and formulating new pharmaceuticals. For example, Johnson & Johnson's drug discovery and research branch, Janssen Pharmaceuticals R&D, has multiple innovative products in the pipeline for registration and filing over the next year.
What I like most about the company right now is its optimistic guidance into 2014. Management is expecting earnings of $5.75 to $5.85 a share, which is in line with analysts' consensus.
Risks to Consider: Risks exist regardless of the strength of the company. A global operation like Johnson & Johnson is exposed to political and economic uncertainty, both inside and outside the U.S. In addition, currency fluctuations can weigh substantially on the bottom line. Always use stop-loss orders and diversify when investing.
Action to Take --> JNJ's price followed the overall market lower last month. However, price has found support at the 200-day simple moving average in the $89 range. This creates the ideal technical entry on the pullback. Entering now with stops at $87 and a six-month target of $95 makes solid investment sense.