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| Healthcare by Steven Rindner/cc |
Sub-Industry: Pharmaceutical
A high level due diligence for the average Joe.
Disclaimer: This is only an example of a high-level due diligence on a company's overall performance. This is not a recommendation to trade or invest. Please consult with your professional investment manager for your investing or trading needs.
STOCK PERFORMANCE OVER ONE YEAR PERIOD: INVESTORS GAINED 14%
Investors who were bullish on JNJ and held on to their shares for the last 52 weeks gained approximately 14%, a better performance than SPY which gained about 13% during the same period. Those who held on to their shares for the last 3 months lost approximately -8%, a poor performance than SPY which gained about 1% during the same period. Recent shareholders who opened their positions in the last 30 days are losers as JNJ shares lost approximately -10% , a poor performance than SPY which lost -5% during the same period. Finally, those who recently opened their position in the last 5 trading days lost approximately -6% losing to SPY by -1%.
The downtrend or losses shown in the one week, one month and one quarter charts could be a signal of reversal from the uptrend or gains as shown in the one year chart. One important market characteristic to remember when investing or trading is that the market will move the price dial regardless of the past performance.
Note: The gain or loss discussed above do not include dividends. As of the most recent dividend payment, the dividend yield was about 2.59%.
VOLUME AND RANGE
Over the last 52 trading weeks, JNJ traded at a daily average of 7,000,000 from a low to high stock price of 113.40 - 148.32. Long term investors usually care less about the daily average volume than day or swing traders as the latter are more concerned about the slippage and volatility which is why day traders always factor-in the volume before trading a stock. Day traders and swing traders are generally concerned as to how quick they can sell the stocks if needed. A very high average volume is an indication of quicker disposal of a stock that may have to be sold on demand. As an example, if the stock trade more than 1,000,000 per day, it should not be a problem selling the stocks.
Another important reason why traders take note of the daily volume is that sudden price increases with volume surges could potentially be followed by a breakout as the momentum builds up. Momentum traders follow these indicators closely and entry prior to explosive breakouts can be profitable if done properly. Note that momentum trading is by itself a trading strategy that requires proper study. For JNJ, the price closed at 2.51% above previous price while the volume increased by 113.737%.
VOLATILITY: BETA AND AVERAGE TRUE RANGE [ATR]
BETA is the measure of volatility of a stock in comparison with the market. In simple terms, the market has a beta of 1, therefore if the stock has a higher beta, it theoretically implies that the stock will experience higher rate of volatility as a response to many factors that make the market move to any direction. JNJ has a BETA of 0.78 which implies that it is less volatile than the market.
ATR is an indicator of volatility of the stock for the given period, usually 14 days or more. In simple terms, JNJ whose ATR is at $3.56 indicates that the stock may fluctuate between $.01 - $3.56 . It is important to note that this indicator is not absolute as the market dictates the actual volatility during the trading day. ATR is usually used by traders to calculate their stop loss. As a practical example, if JNJ was purchased at 129.53 , using the ATR as a guide, the stop loss can be placed at an entry minus a little higher than the ATR to avoid getting stopped by the volatility. In this case, a stop loss can be placed at a little less than 125.97 (calculated as price minus ATR). Some may even go as high as entry price minus X2 of the ATR. Whatever traders choose to use, it is usually based on their risk management practice.
PRICE TARGET
Price targets are analysts or advisors estimates of what might be their most profitable price if they invest in the company. Many analysts or advisors have different factors baked in their price targets calculations and they sometimes have different time periods, although it is acceptable to say a 52 week period is the most common timeframe. JNJ has a price target of about $150.71. In simple terms, JNJ is currently trading below its target price by about -14.14% which is an indication that it has not reached the target price. An upgrade sometimes follow if the company eventually exceed the expectations before the end of year with an improved outlook, especially its EPS and revenue. If not, a downgrade or no action could follow. As a reminder, it is important to note that trading below target price does not necessarily mean a bad thing as it could also imply a potential upside.
MAJOR SUPPORT LEVEL: SMA 200 AND SMA 50
JNJ is currently trading below its SMA 200 by about -4.03%. SMA 200 is generally considered by many as a major support for stocks. This is measured using a period of 40 trading weeks. Many traders and investors consider price below SMA 200 as an indication of downtrend and therefore a good time to short. In theory, if traders and investors have respected the stocks' SMA 200 (that is, the price has historically bounced off SMA 200), it is considered a good time to open a position every time the price touches or is near SMA 200 with the expectation of the price to rise back up as it has done in the past.
JNJ is currently trading below its SMA 50 by about -8.14%. In theory, if traders and investors have respected the stocks' SMA 50 (that is, the price has historically bounced off SMA 50), it is considered a good time to open a position everytime the price touches or is near SMA 50 with the expectation of the price to rise back up as it has done in the past.
INSIDER TRADING AND SMART MONEY
Insider ownership is a very powerful indicator as it provides a snapshot of how the insiders (employees, executives, officers) view the company. As they have direct knowledge of the company’s health and operations, in theory, they are better judge of the company's future, provided they are not involved in any unlawful insider dealings.
As of the most recent SEC Form 3 filings, insider ownership is at 0.05% after insider transactions resulted in 0% decrease.
As of the most recent SEC Form 13F filings, institutional ownership is about 67.5% after 0% change. The level of institutional ownership or more popularly referred to as Smart Money can be used as a factor in determining the investing or trading outlook of large funds towards the Company. A high or increasing trend in institutional ownership over a longer period can be interpreted as a bullish sentiment from these large funds.
SHORT FLOAT AS A SENTIMENT INDICATOR
Short float is percentage of shares being traded as ""short"" in relation to the total shares out in the market available for public trading. Currently, total short float is 0.68%. Short float is sometimes used by traders as an additional indicator of sentiment from traders. In simple terms, a very high short float percentage can sometimes indicate a bearish sentiment as more traders hopes the stock price to fall while a low percentage can be generally considered bullish as less traders think price would not fall. Using short float should be analyzed from various perspective. As an example, it can show a better picture if the trend of short float is analyzed in relation to the number of days to cover. Again, various factors should be put together to provide a more meaningful data to use this as a factor in determining trader's sentiment.
KEY FUNDAMENTAL ANALYSIS (High-Level)
PROFITABILITY INDICATOR RATIOS: Margins
Investors or traders look at profit margin ratios to help them determine how well the company used its assets in generating profit. These profitability ratios focuses on a very important item in the financial performance of the company, ""profit"". Positive or high profitability ratios are viewed positively and are good indications of long-term stability and upside in terms of shareholder value. These profitability ratios when compared to their sub industry group averages are even better indicators than just looking at the financial statement balances.
Gross Margin better than its Sub-industry. Based on the last twelve months sales, JNJ posted a gross margin rate of 73%,a good indication that the company is currently selling its products/services above its cost. This is usually considered as a first test of profitability. The sub-industry average meanwhile posted gross margin of 6.85%.
Operating Margin better than its Sub-industry. Based on the last twelve months sales, JNJ posted an operating margin rate of 26%,a good indication that the company is efficient with its operating costs such as selling, general and administrative expenses. Note that the management is directly in control of its operating expenses, therefore the operating results can be directly attributed to the management's decisions. The sub-industry posted an average operating margin of -49.28%.
Pretax Margin better than its Sub-industry. Based on the last twelve months sales, JNJ posted a pretax margin rate of 23%,a good indication that the company is efficient with its tax planning activities. The same-industry posted an average pretax margin of -57.77%.
EPS CHANGE OF 11.16% AND REVENUE IMPROVEMENT BY 2% IN THE LAST 5 YEARS JNJ showed a change in its EPS by 11.16%, a rate higher than the sector average change of 0.49%. This may indicate a stronger growth trend when compared to its competitors within the sector.
During the same period JNJ showed a change in its revenue by 2%, a rate higher than the sector average change of 1%. This may indicate a stronger grip of its market share when compared to its competitors within the sector.
MARKET CAPITALIZATION
The market capitalization is 339.47B is while the average sector market capitalization is $27.69B
BALANCE SHEET STRENGTH
The current ratio is 1.68 which may mean the company is able to meet it short term obligations. Higher current ratios are generally an indication of well managed working capital.
OTHER NOTES:
Johnson & Johnson (JNJ) is a member of Dividend Aristocrats, a group of S&P 500 components who have increased their dividend payouts for the 25 consecutive years. The headquarters is located in New Brunswick, New Jersey.
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