Is This Great Stock Trading for a Great Price? – Johnson & Johnson (JNJ), Pfizer Inc. (PFE), Eli Lilly & Co. (LLY)

You might be concerned about Pfizer Inc. (NYSE:PFE) losing Lipitor, and for good reason. Lipitor accounted for $9.6 billion in sales for Pfizer in 2011, almost as much as the company’s next three best-selling products combined. The company will have to allocate significant resources if it wants to replace these lost sales, which will take a toll on the company’s bottom line going forward. Indeed, Pfizer Inc. (NYSE:PFE) is forecasting reported diluted earnings per share to be in a range of $1.50 to $1.65 for fiscal year 2013. As a result, the company is trading for more than 17 times the midpoint of its guided 2013 range.

Meanwhile, fellow big pharma peer Eli Lilly & Co. (NYSE:LLY) reported full-year 2012 revenues declined 7% year over year and earnings of $3.66 per share. Consequently, the stock now trades for a modest 15 times trailing earnings. While Eli Lilly & Co. (NYSE:LLY)’s share price has performed very well recently, increasing more than 20% in 2012, the company hasn’t provided investors with a dividend increase in almost three years. Because its stock price has risen so much over the last couple years, the yield is now down to 3.5% at recent prices. Going forward, management hasn’t provided guidance as to when the company will resume increasing its payout.

The Foolish takeaway

Both Pfizer and Eli Lilly & Co. (NYSE:LLY) trade for lower earnings multiples than Johnson & Johnson, but you could argue for good reason.  Pfizer is in the midst of trying to replace its best-selling drug, and Eli Lilly & Co. (NYSE:LLY) can’t offer definitive guidance on its next dividend increase, something J&J investors take for granted.

Johnson & Johnson (NYSE:JNJ) holds a fantastic financial position and superbly profitable business.  As a matter of fact, J&J is one of only four U.S.-based companies to hold a triple-A credit rating from Standard & Poor’s. You could certainly do worse than one of America’s best companies accompanied by a 3% dividend yield.  At the same time, it’s worth remembering that the price you pay for a stock matters.

At recent prices, Johnson & Johnson trades at an all-time high. J&J exchanges hands for 20 times its trailing twelve-month diluted earnings per share. That figure places its P/E ratio at its highest point over the last five years. More plainly stated, investors are paying more for $1 of J&J’s earnings than at any point over the last five years. Johnson & Johnson (NYSE:JNJ) isn’t expensive, but I feel at this level it’s fully valued.  There’s no harm in waiting for a better buying opportunity.  I’ll be placing the stock on my watch list in case a more attractive entry price presents itself.

The article Is This Great Stock Trading for a Great Price? originally appeared on Fool.com and is written by Robert Ciura.

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