Coca-Cola (NYSE:KO) and Johnson & Johnson (NYSE:JNJ), while operating in completely different industries, factored into the discussion in Cramer’s October 2nd morning appearance. The CNBC TV host discussed the two as stocks that could be bought on the back of weakness in the economy indicated through the jobs report, which saw the US add a mere 29,000 new jobs in September. According to Cramer, the two can be bought on the back of balance sheet strength and dividend stability:
“I can make a case that, that maybe some of the higher yielding stocks, that are not utilities, that are not in trouble, might be good. I mean, obviously, it’s going to be CocaCola and JNG. I know that’s really boring, but, you gotta have these really good balance sheets with decent dividends. JNJ was crushed yesterday. It’s a good opportunity, buy some JNJ.”
The hedge funds would agree with Cramer, as both firms are part of our coverage of the 10 Best Dividend Kings To Buy According to Hedge Funds.
For Coca-Cola, one key factor is whether the firm’s strong volume growth can justify its current valuation. The stock is currently trading at a forward P/E ratio of 25.32, which is at the higher end of its historic range. Additionally, the stock is up by a strong 24% year-to-date despite investor focus primarily remaining on AI stocks. Coca-Cola’s second quarter earnings were a strong set of results when it comes to volume growth.
The firm’s global unit case volume grew by 6% in the quarter, for the strongest jump in 17 years apart from the post-pandemic recovery. Product wise, Coca-Cola Zero Sugar grew by 16% annually, while Diet Coke jumped by 7% to fuel the growth. The growth made it unsurprising that the shares closed 5% higher on the day of the earnings report. Wondering more about volume growth and its impact on valuation? Don’t miss Coca-Cola (KO) Posted 5% Volume Growth in Q2, Does Its Multiple Already Price It In?.
On the dividend front, management had good news as it raised full year free cash flow projection to $12.4 billion. However, while investors, management and Cramer are ecstatic and optimistic, the third quarter could prove to be tricky for Coca-Cola due to six fewer selling days that could impact volume. Not to mention, Q3 2025 saw the firm’s volume and prices grow courtesy of a 7% Price/Mix growth in Latin America and a 6% overall growth, which sets up for a higher base for future growth.
Shifting to Johnson & Johnson, the debate is all about the new versus the old. Looking at the old, the firm’s Stelara drug for inflammation is now facing strong competition from biosimilars. In the second quarter, Stelara’s sales crashed by 55.7% to $740 million due to the loss of exclusivity.
Yet, at the same time, Johnson & Johnson’s Tremfya drug for moderate-to-severe plaque psoriasis and active psoriatic arthritis grew its sales by 71% which touched the $2 billion mark for the first time. Consequently, the debate is whether the rising drugs and those in trial will supplement those where the firm is losing exclusivity. Looking at the valuation, the stock trades at a forward P/E ratio of 24 which is slightly lower than Eli Lilly’s 24. With Cramer having repeatedly praised the firm for its cancer drug portfolio (Read: 15 Fresh Stocks Jim Cramer Discussed), the ratio, which is at the higher end of its average, hints that investors are pricing in strong execution.
Looking at hedge fund sentiment, 117 funds tracked by Insider Monkey had disclosed a stake in JNJ. For Coca-Cola, the figure is 90, which marks a sharp jump over Q1’s 76. The Q1 figure for JNJ was 113. Short interest as a percentage of float is less than 1% for both.
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