The Perfect Defensive Stock For This 'Joyless' Bull Market

[Agenakgeno]

I think it's safe to say market sentiment is not particularly positive these days. Billionaire investor Ken Fisher says this is the "most joyless" bull market ever seen, while my research has been warning for some time that we are headed for a market correction... or worse.

When investors are worried about a sell-off, and even when stocks begin to correct, they flock to defensive sectors such as consumer staples and utilities. The companies in these sectors provide the goods and services people need whether we are in an economic boom or a recession.

Most defensive names also distribute dividends, allowing investors to park money in shares and collect a check even though growth may not be stellar.

[Agochehog]

These qualities make defensive stocks less prone to volatility and dramatic sell-offs than your average stock in sectors like tech or consumer discretionary. The trade-off, of course, is that defensive names may offer less appreciation during bull runs.

In this uncertain market, a play on a defensive name is just what the doctor ordered.

Now, that doesn't mean we should pile into just any consumer staple or utility stock. Even though these sectors are likely to gain favor during a pullback, it is important the defensive stocks we choose also be a good value.

[agvamihuuzo]

A Best-in-Breed Defensive Stock
Not only is Johnson & Johnson (NYSE: JNJ (https://www.streetauthority.com/stocks/JNJ)) a classic defensive name, but the stock looks undervalued and has a secret weapon in its pocket...

The company is best-known as the maker of Band-Aids, Neutrogena, Listerine, Tylenol and countless other popular brands. It manufactures products that consumers need regardless of what they think about the stock market or the economy.

JNJ has a huge $325 billion-plus market cap and is a member of the venerable blue-chip Dow 30. Just like large ships in choppy waters, large companies tend to be more stable during rocky times.

With regard to value, Johnson & Johnson trades at a nearly 10% discount to the S&P 500's price-to-earnings (P/E) ratio, yet the company saw adjusted earnings grow 1.8% year over year in Q2. Meanwhile, blended earnings for the S&P 500 fell 3.2%, according to FactSet -- the fifth consecutive quarter of contraction.

[AilaModo]

For the current quarter, analysts project Johnson & Johnson's earnings will increase 10.7% while earnings for the S&P 500 index are expected to decline 2.8%.

Despite JNJ's strong overall fundamentals, the stock is trading more than 6% below the consensus 12-month price target of $128.18.

I think it's safe to say that the average investor is attracted to JNJ because they know the company's products and find comfort in its timeless brands. What many do not know is that the vast majority of the company's revenue is not generated from these popular products. In fact, less than 20% of Johnson & Johnson's sales came from the consumer market last year.

[aixuzayimau]

What's Hidden Behind That Trusted Logo
Not only is JNJ the world's sixth-largest consumer health company, it also runs the world's most comprehensive medical devices business, as well as the world's sixth-largest biologics enterprise and the fifth-largest pharmaceuticals company.

As global health care coverage improves, and as Johnson & Johnson's promising pipeline of drugs and devices comes to fruition, these segments are set to be huge profit drivers. And this is where the upside surprise for the stock lies in my opinion.

While the defensive lure of the consumer products side should keep investors flocking to JNJ during rough market patches, growth in the pharmaceutical and medical devices segments could be the real catalyst to propel shares higher.

Pharmaceutical sales accounted for roughly 45% of JNJ's revenue in 2015, increasing 7% year over year.

While some pharmaceutical companies have just one or two drugs that account for most of their revenue, JNJ has a diversified drug portfolio that should help reduce risk. The company has a suite of 14 drugs, with nine of those drugs seeing double-digit sales growth in the most recent quarter.