Friday, March 20, 2009

JNJ Upgrade by UBS/Buy of GJO/Lottery Ticket Purchases

 The FDIC suffered a 10.7 billion dollar loss connected with its seizure of the failed IndyMac bank. MarketWatch

Johnson and Johnson was upgraded to buy at UBS. J MarketWatchAn FDA panel recommended the approval of rivaroxaban, a drug developed by JNJ and Bayer AG, despite its bleeding risk.  This drug would be used to prevent deep vein thrombosis and pulmonary embolism in certain joint replacement surgeries.  Medical News: Panel Recommends Approval for Rivaroxaban - in Product Alert, Prescriptions from MedPage Today   The UBS analyst believes this drug may be a potential replacement for warfarin.  JNJ held up extremely well during the stock market crash, even increasing in price some, until the Lehman collapse in September of last year.  Then, JNJ fell from around 70 to 50 as of yesterday.  The consensus estimate is $4.49 for 2009 and $4.89 for 2010. JNJ: Analyst Estimates for Johnson & Johnson - Yahoo! Finance  I would not buy JNJ based on whether or not this drug is approved by the FDA or expands into other indications besides the one recommended by the FDA panel yesterday.   The collection of businesses that JNJ operates is being priced in my opinion at a favorable price now for a long term investor.  I have been considering starting a position again in it but have not yet made a decision.   My only hesitation is that a few JNJ divisions are facing declining sales.  The pharmaceutical division last quarter had a revenue decline of 11% due in part to generic competition for Duragesic and Respardil, JNJ's major  schizophrenia drug. Johnson & Johnson Reports Full-Year and Fourth-Quarter 2008 Results: Financial News - Yahoo! Finance   JForbes.comCompetition in its stent business is intense and JNJ has been losing market share.   I have also read a number of stories questioning the effectiveness of extensive use of stents.  I have read several reports about side effects from its drug Procrit. On the bright side I like the consumer products acquired from Pfizer,  and JNJ's other consumer products.  The Consumer segment had 16 billion in sales in 2008, an increase of 10.8% over the prior year.  The company has a considerable amount of free cash flow and has been using it to acquire businesses over the past year, including Mentor (reconstructive medicine).   Yahoo! FinanceThe FDA panel recommended ustekinumab for the treatment of psoriasis.  Seeking Alpha Management is continuing to use cash flow to buy back stock and to pay a good dividend.   I am not going to make a decision today and will wait for the UBS upgrade to wear off. 

I have been considering buying another floater that pays 1/2% above 3 month LIBOR with no guaranteed minimum rate.  My decision to buy 100 shares this morning was due almost entirely to its fit within my asset allocation scheme, and secondarily to the quality of the company that issued it (Wal Mart) and its current deep discount to par value.  I bought 100 shares of the TC GJO at $16.5 this morning.  Par value is $25 and maturity is in 2030. Interest is paid monthly. This is a link to the prospectus:

The three month LIBOR rate is currently very unappealing to me at around 1 1/4%.   This link provides some historical chart information on this rate.   3 Month LIBOR - Rate, Definition & Historical Graph   The current yield on GJO is less than 3% based on my cost.  With 3 month LIBOR at 5%, then the yield at the current price would rise to around 8.3%.  I have avoided it and others with the same or similar terms due to the absence of a guaranteed minimum rate, although there is a guaranteed maximum rate in this TC of 7.5% based on its $25 par value.  So the top yield based on my cost would be around 11.36%.  There is also the possibility of capturing a $750 profit in 2030. FITCH rates the underlying securities AA, with a coupon of 7.55% and a maturity on 9/28/2030. Fitch Corporate The underlying securities are senior notes.  

This fits the allocation as a security with some some inflation protection, in that a rise in inflation should cause a rise in short rates.  I am concerned about inflation, not this month or even this year, but in the not too distant future.  A far less important consideration is diversification in my growing bond portfolio.  At some point, the Fed will have to reverse course and start to raise the Federal Funds rate.   The main drawback is the lack of a guarantee.  

I said in prior posts that I would not buy common stock in a bank except as a trade.  I probably need to modify that statement by saying no meaningful investment in a bank's common stock. Lottery ticket purchases are allowed in any sector.
 I recently bought 50 shares of Regions Financial (RF) as a lottery ticket purchase. Buys of DKF, AA and a Lottery Ticket in 50 shares of RF/Heinz & its Boston Market Line/ I view that as a trade but recognize that it may take some time to work, possibly 2 to 5 years.  A lottery ticket purchase is viewed as just that, a relatively high risk gamble with a potential total or substantial loss with less than $200 committed to the position.AT & T and Goodrich Bonds/ Life Insurance Companies/S L Green Realty/Metal Prices/Buy of SBGI & SOLD KSA

The recent fall in the dollar, if it continues, will benefit the large American multinationals that have recently suffered hits due to the dollar's strength.


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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