We recently compiled a list of the 7 Undervalued Blue Chip Stocks To Buy Right Now. In this article, we are going to take a look at where Johnson & Johnson (NYSE:JNJ) stands against the other undervalued blue chip stocks.
Kristen Bitterly, Head of Global Strategy at Citi, recently appeared on CNBC’s Squawk Box and explained how inflation and employment trends played a role in recent decisions from the Fed. Bitterly stated that while they had anticipated a 25-basis point rate cut due to some sticky inflation data, especially around the owner’s equivalent rent, she noted that the difference between a 25 or 50 basis point cut shouldn’t be overanalyzed. What matters most is the overall trajectory of rates moving forward, and as long as employment data remains stable, the Federal Reserve and the market are aiming for a soft landing.
Discussing rate cuts during a time of record stock market highs and low unemployment, Bitterly acknowledged the unusual timing. Typically, rate cuts happen during crises; however, she suggested that the Federal Reserve may be trying to stay ahead of a potential slowdown. She highlighted that the Fed’s main focus is on employment and price stability, not necessarily on stock market highs. Now that inflation is somewhat under control, the focus has shifted to keeping unemployment around 4%.
When asked about potential inflation risks, Bitterly mentioned ongoing infrastructure, CHIPS Act, and IRA spending, which could indeed lead to inflationary pressures. While the Fed’s projections may be too optimistic about inflation falling to 2.5%, she pointed out that we’re dealing more with disinflation rather than deflation.
“When we look at the Statement of Economic Projections, you might be right—they could be too aggressive in predicting where inflation will be. It might hover around 2.5%, and that could be sustainable in the near future. We’re not talking about deflation, just disinflation. The price increases we’ve seen are still there, even if inflation is coming down.”
On the strength of retail sales, Bitterly highlighted a strong economic backdrop, noting $6.5 trillion in money market funds, decreasing inflation, and record profitability among U.S. companies. Despite concerns like election volatility, she believes there’s still significant capital looking to enter the market, making for a favorable outlook. Bitterly predicted that the S&P 500 would likely finish the year higher, although October might be challenging due to election-related uncertainty. Historically, election years see a dip in October as investors take profits, but a rally usually follows once election results are clear.
Looking ahead to next year, she expects a return to fundamentals. With 10 out of 11 sectors anticipated to show earnings growth this year, and possibly all sectors growing in 2025, she emphasized that tariffs and taxation are important factors, but ultimately driven by policy rather than politics.
“Next year, we return to fundamentals. After the election, we focus on fundamentals. This year, we expect 10 out of 11 sectors to show earnings growth, compared to 7 out of 11 last year, which was an earnings recession. It could be 11 out of 11 going into 2025. On the election front, people are looking at tariffs and taxation, but policy drives that more than politics.”
Our Methodology
In this article, we screened for large to mega cap stocks that were trading at a forward P/E of less than 20. We identified 20 blue chip stocks that met our criteria and then selected the stocks that were the most popular among elite hedge funds, as of Q2 2024, and that analysts were bullish on. The stocks are sorted in ascending order of their upside potential, as of September 24.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Johnson & Johnson (NYSE:JNJ)
Analyst Upside Potential: 4.78%
Forward P/E, as of September 24: 15.02
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ) ranks 6th in our list of 7 undervalued blue chip stocks to buy right now. Johnson & Johnson (NYSE:JNJ)’s Q2 2024 earnings were strong, with a revenue increase of 4.3% to $22.4 billion, driven primarily by its pharmaceutical division, which grew by 7.8%. Despite some one-time charges, its adjusted earnings per share (EPS) rose by 10.2% to $2.82, exceeding expectations.
Following the spinoff of its consumer health division, Kenvue, Johnson & Johnson (NYSE:JNJ) has shifted its focus towards higher-margin areas such as pharmaceuticals and medical devices, positioning itself for long-term profitability. Johnson & Johnson (NYSE:JNJ)’s leadership in key therapeutic areas, including immunology and oncology, along with an innovative product pipeline, enhances its growth potential.
With a forward P/E ratio of 15.02 and a market capitalization of $390.6 billion, Johnson & Johnson (NYSE:JNJ) appears undervalued relative to its growth prospects. Johnson & Johnson (NYSE:JNJ)’s strong balance sheet and commitment to research and development further bolster its position in the healthcare sector. As it navigates a post-pandemic landscape, Johnson & Johnson (NYSE:JNJ) is well-positioned to capitalize on increased healthcare spending and demographic trends, making it a compelling investment opportunity for long-term growth.
Overall JNJ ranks 6th on our list of the undervalued blue chip stocks to buy right now. While we acknowledge the potential of JNJ as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JNJ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.