Johnson & Johnson Upside

While the stock of Johnson & Johnson (JNJ) has the same value it had ten years ago, the company has doubled sales and increased earnings per share 116% over  the same time period. Perhaps more importantly, they have increased their dividend by 221%, boosting it every year; the stock now yields 3.5%.

The stock has traded very tightly since December 2011 and looks ready to clear resistance in the 66 area. The healthcare sector also looks strong recently on a relative strength basis.

A riskier way to play JNJ is with call options. The deep-in-the-money January 19, 2013 50-strike call options have hardly any premium in them and offer a leveraged way to participate in JNJ price appreciation, albeit with no dividends.

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About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
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