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Johnson & Johnson (JNJ) Takes a Breather

After a 12-week run of seeing its share price rise for the week, Johnson & Johnson (NYSE:JNJ) stock fell last week. Investors were paid a dividend of $0.66 per share, but even factoring that into account, Johnson & Johnson stock still fell for the week.

Oh, the horrors.

I jest, of course. Stocks can’t go up forever. There are only so many buyers. Three months of continually higher prices is pretty impressive. And except for a few brief pauses, the run has actually been much longer.

JNJ Chart

JNJ data by YCharts.

What sent Johnson & Johnson stock on its terror
I think it’s confidence more than anything. Investors were a bit spooked by the rash of recalls. From May 2010, when the recalls came to fruition, through the end of last year, Johnson & Johnson (NYSE:JNJ) stock was up just 9% compared to 20% for the S&P 500.

On the first quarter conference call, management said that three-quarters of the recalled over-the-counter products are scheduled to be back on the market by the end of this year. As confidence grew that the company could get things back on track and there wouldn’t be a long-term effect on the reputation of its products, it became easier to ascribe a higher value to Johnson & Johnson stock.

Johnson & Johnson (JNJ)What it’ll take to keep Johnson & Johnson stock going
The easy part is over. Growth of Johnson & Johnson (NYSE:JNJ) stock is going to come from growth in revenue and perhaps an expansion of margins. The conglomerate is famous for the latter, especially using its size to lower margins for acquisitions like its recent purchase of medical device maker Synthes.

To increase revenue, Johnson & Johnson (NYSE:JNJneeds a mixture of growth from older products, successful launches of new products, and a pipeline that pushes products from the clinic through Food and Drug Administration approval.

For the older products, investors should keep their eyes on psoriasis treatment Stelara and antipsychotic Invega Sustenna. Both are growing at a substantial clip.

As for new drugs, watch Incivo, which Johnson & Johnson sells abroad for Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). While U.S. sales of Vertex’s hepatitis C drug — called Incivek stateside — have slumped as patients wait for newer medications, sales outside the U.S. continue to increase, benefiting both Johnson & Johnson and Vertex, which receives a royalty on sales.