Johnson & Johnson (JNJ): Dividend King Loses Some of its Hedge Fund Subjects

It is generally believed that equity investing is the best way to save capital for long-term goals. Renowned investor Warren Buffett has been buying and holding equities non-stop over the past few decades, a strategy that has made him billions of dollars and which he recommends to all investors. However, with so many securities out there, selecting high-potential stocks can be extremely difficult for retail investors. Many may ask themselves whether retail investors can select winning stocks on their own and a simple answer to this question is that they can, even though financial advisors and money managers tend to say or think the opposite. As there are thousands of stocks retail investors can trade on a daily basis, one way of selecting or picking high-potential stocks is by examining the basket of most-loved stocks in the hedge fund industry. That pool of stocks includes stocks of different categories, so investors can identify particular investment opportunities that match their investing styles and strategies. In this article we will find out how hedge fund sentiment towards Johnson & Johnson (NYSE:JNJ) changed in the fourth quarter of 2015.

Johnson & Johnson (NYSE:JNJ) was in 72 hedge funds’ portfolios at the end of the fourth quarter of 2015. JNJ investors should pay attention to a decrease in hedge fund interest of late. There were 74 hedge funds in our database with JNJ positions at the end of the prior quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and China Mobile Ltd. (ADR) (NYSE:CHL) to gather more data points.

Johnson & Johnson (NYSE:JNJ) is a global consumer healthcare products company, as well as a pharmaceutical and medical device company, one which owns more than 250 operating companies around the globe. JNJ generates a high portion of its sales from the healthcare industry, as it supplies surgical equipment, stents, prescription medications and other medical devices. Johnson & Johnson generated total sales of $70.07 billion during 2015, down from $74.33 billion reported for 2014. The significant decline in sales was mainly driven by weaker sales figures delivered by Johnson & Johnson’s international companies, which dropped by 13.1% year-over-year to $34.39 billion.. Sales by its U.S companies on the other hand increased to $35.69 billion in 2015 from $34.78 billion in 2014 and $31.91 billion in 2013.

Let’s turn the spotlight on each global market Johnson & Johnson (NYSE:JNJ) operates in to identify the primary reason behind this massive decline in sales. The total sales by companies in Europe declined by 15.6% year-over-year primarily due to a negative currency impact of 16.7%, which was partially offset by 1.1% operational growth. At the same time, sales by companies in the Western Hemisphere, excluding the United States, experienced a decline of 15.6% year-over-year, yet again because of negative currency impact. However, sales generated by these companies reached an operational growth rate of 2.6%. Last but not least, sales by companies in the Asia-Pacific, Africa region declined by 8.1% year-over-year due to negative currency impact.

In the meantime, JNJ shares are up by 6% over the past 12 months, after having gained nearly 4% since the beginning of 2016. Johnson & Johnson (NYSE:JNJ) is one of the very few Dividend Kings, which represent companies with more than 50 straight years of rising dividend payments. In fact, the company has increased its annual dividend payment for 53 consecutive years. Johnson & Johnson currently pays out an annual dividend of $3.00, which denotes a current dividend yield of 2.81%. JNJ shares are currently trading at 15.44-times expected 2017 earnings, below the forward P/E multiple of 22.68 for competitor Colgate-Palmolive Company (NYSE:CL) but significantly above the P/E ratio of 11.97 for Pfizer Inc. (NYSE:PFE).

With all of this in mind, we’re going to take a peek at the fresh hedge fund moves in Johnson & Johnson (NYSE:JNJ).

How have hedgies been trading Johnson & Johnson (NYSE:JNJ)?

Heading into 2016, a total of 72 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 3% decline from the previous quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or had already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Johnson & Johnson (NYSE:JNJ). Fisher Asset Management has a $1.11 billion position in the stock, comprising 2.1% of its 13F portfolio. Sitting at the No. 2 spot is Donald Yacktman of Yacktman Asset Management, with a $751.5 million position; the fund has 5.7% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of First Eagle Investment Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Cliff Asness’ AQR Capital Management.

Because Johnson & Johnson (NYSE:JNJ) has experienced falling interest from hedge fund managers, it’s safe to say that there exists a select few hedge funds that elected to cut their full holdings heading into 2016. Intriguingly, Malcolm Fairbairn’s Ascend Capital cut the largest stake of all the hedgies monitored by Insider Monkey, valued at about $56.9 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dropped its call options, about $25.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into 2016.

The last page of this article will reveal the hedge fund activity in companies with market capitalizations similar to that of Johnson & Johnson.

Let’s check out hedge fund activity in other stocks similar to Johnson & Johnson (NYSE:JNJ). These stocks are Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), China Mobile Ltd. (ADR) (NYSE:CHL), and The Procter & Gamble Company (NYSE:PG). All of these stocks’ market caps are similar to JNJ’s market cap.

As you can see these stocks had an average of 65 hedge funds with bullish positions and the average amount invested in these stocks was $12.35 billion. That figure was $4.16 billion in JNJ’s case. JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand China Mobile Ltd. (ADR) (NYSE:CHL) is the least popular one with only 24 bullish hedge fund positions. Johnson & Johnson (NYSE:JNJ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard JPM might be a better candidate to consider a long position.

Disclosure: None