Every good baseball team needs a solid leadoff hitter. Does not need to hit home runs, or drive runs in. Definitely needs to be a "gets on base" kind of batter. A walk or a hit to start the game can set the table. In other words, drive up the opposing pitcher's pitch count while eroding his confidence, all while getting oneself in position to score. Speed on the base paths is a definite plus.
The problem with "earnings season" is that the banks traditionally bat leadoff, or at least they have since Alcoa (AA) surrendered the position a few years back. So, large cap money-center banks such as JP Morgan (JPM) and Citigroup (C) head to the batter's box first. Problem is that for some time now, these guys can not get on base. Heck, they can't even hit their weight (trade at, or well above tangible book). Both JPM and C will report ahead of the market opening on Tuesday, October 13th.
Oh, they'll find ways to be profitable. Investors, though... will value these banks through the twin prisms of net margin income and potential exposure to "bad debt" in an uncertain economy. We need a new Ricky Henderson. We need a new Mickey Rivers. We'll even settle for a Brandon Nimmo type sticking his padded elbow out over the plate. There is another potential champion reporting that morning, still three weeks away. Can we have a decent earnings season with expectations running for another decline of more than 20%? Can Johnson & Johnson (JNJ) be our "on-base" guy this quarter, and set the table?
Blue Chip Cornerstone
Johnson & Johnson is the kind of blue chip, dividend paying stock that investors, including your author, like to line the base of their portfolio with. The stock does not come without it's warts. Litigation can always be an issue with large pharmaceutical operations with huge consumer businesses. The baby powder talc story is still out there, seemingly incomplete. Still, just yesterday, I noticed that we were out of baby shampoo when I tried to use some. We have no children in the house. As soon as I was toweled off, I was on Amazon (AMZN) ordering some more. Set to arrive today, btw. Oh, one of the bazaar side effects of the post-Covid syndrome that I went/continue to go through? I can no longer tolerate NSAIDs. Fires up the inflammation. That's aspirin, ibuprofen, and a number of other pain killers. What can I use? Tylenol. That's J&J, btw.
In addition to potential for litigation, competition from generics, as well as the now strengthening dollar would also be negatives. There are profound positives however. Not only does the firm pay shareholders $4.04 per share annually (yielding 2.8%), but the shares themselves trade at "just" 15 times forward looking earnings. With $19 billion in cash on the balance sheet and another $19 billion in levered free cash flow, the firm is overtly healthy, and can afford to be flexible in its approach to the coming uncertainty. Yes, despite a second quarter that showed earnings "growth" of -35% on revenue "growth" of -10.8%.
For the current quarter, Wall Street looks for EPS of $1.96 on revenue of about $20.6 billion. This would amount to a much smaller decline in year over year earnings as sales return to trend. Yes, the shares have weakened with the market this month. I see no reason to flee this name, therefore, I am not.
The news on Wednesday was positive for sure. The shares finished the day green in a sea of red for the day. J&J initiated a Phase 3 clinical trial with the intention to enroll 60K participants to evaluate the safety and efficacy of the Covid-19 vaccine candidate Ad26.COV2.S (JNJ-78436735). Enrollees are expected to be at least 18 years of age, with a significant portion expected to be older than 60 with and without the comorbidities associated with an increased risk for a severe outcome.
The study's primary efficacy endpoint will be the number of participants with a first occurrence of confirmed moderate to severe Covid-19 with seronegative status up to 2.1 years. The estimated completion date for this study is March 2023. That said, this is expected to be a single dosage vaccine that will not require a booster shot. Chief Science Officer Paul Stoffels does allow that the firm may be able to report information regarding both safety and efficacy by year's end... so well before the entire study unfolds.
Either Pfizer (PFE) or Moderna (MRNA) will get to the finish line first. That's just my opinion. A finished product developed by Johnson & Johnson), or Merck (MRK) ? That will be the gold standard down the road. That's also just my opinion.
The important number to watch right now for investors is $143.46. That's the 200 day SMA that you'll note has been pierced to the downside upon several occasions this week. Kind of like what the stock did in June. My opinion is that this is a name that one does not have to be afraid of accumulating on weakness. My target price created by that orange "saucer with handle" pattern had been $184. I think that is probably unrealistic in this market environment. I probably need to shave a good $20 off of that level, but believe me, there is no urgency in my actions regarding this name as there may be in some more volatile types that I also have exposure to.