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SIVY ON STOCKS from money.com
May 21, 2001 *****************[ A D V E R T I S E M E N T ]**************** Jump-start a child's College Fund with MONEY's $5000 QUICK CASH Sweepstakes! It's easy - just click the link below for your chance to enter to win $5000 Cash! Plus while you're at money.com, jumpstart your investments with a FREE Trial issue of MONEY! Click Here: http://www.money.com/scholarship ************************************************************** Steady profits Companies like Johnson & Johnson that post consistent profit gains are the best choice to balance volatile tech stocks. By Michael Sivy Tech stocks soared on Monday -- their fifth straight winning session. Over the past two months, in fact, the Nasdaq Composite index has soared more than 35 percent, fueled by falling interest rates and signs that the economy is holding up reasonably well. Moreover, after five interest rate cuts this year by the Federal Reserve, it's likely that the economy will be in an upswing by next year and that tech stocks will go on to further big gains over the next 12 to 18 months. But even the most aggressive investors should think twice about putting too much money into the tech sector. It will continue to be extremely volatile, and might hit another air pocket before the economy begins a sustainable recovery. Fortunately, there are several other stock groups with above-average growth rates that can help balance a tech-heavy portfolio. Companies with the most consistent earnings include broadly diversified makers of drugs and other health-care products. And among those firms, Johnson & Johnson [JNJ] stands out. I last recommended J&J in April 2000 at a price of $77.50 and a price/earnings ratio of 23 (see "J&J bounces"). [ http://www.money.com/money/depts/investing/sivy/archive/000417.html ] At the time -- well before the downturn had even started -- analysts were forecasting that the company would turn in earnings growth of 13 percent to 14 percent. And despite the unexpected economic slump, J&J has hit the high-end of that target. As a result, the stock has gained 30 percent since then to $100.50 a share. And all the indications are that the company will be able to maintain its solid earnings growth rate through the rest of this year and beyond. A large part of J&J's consistency comes from the fact that it is so well diversified. In addition to making well-known items such as Band-Aids, Tylenol and baby shampoo, the company has a booming pharmaceuticals business, as well as major biotech and medical equipment divisions. Among drugs, one of J&J's hot new products is Procrit, used to treat anemia. And the medical equipment division has a state-of-the-art stent -- used to prop open clogged arteries -- that can treat abrupt vessel closure even in cases that have traditionally been difficult. But diversity is not the only explanation for J&J's success. The company has been extremely deft in managing its portfolio of businesses, disposing of more than 20 and acquiring more than 40 over the past decade. Most recently, J&J announced in March that it would acquire Alza, a leader in drug-delivery technology. In addition, J&J has raised its dividend every year for the past 38 years, most recently by 12.5 percent in April. At the same time, the company announced that it would split its shares 2-for-1 on June 13, for shareholders of record as of Tuesday's close. Despite potential long-term returns averaging more than 15 percent (including a 1.5 percent dividend yield), J&J still trades at a P/E 22 percent below those of other major drug stocks. That discount reflects J&J's heavier dependence on over-the-counter health and beauty aids and a less impressive new product pipeline than companies such as Merck and Pfizer have. Nonetheless, J&J's 26 P/E looks rather low compared with its growth rate. Adding such a stock to a portfolio of high-flying tech issues is a no-tears formula for lower risks and more consistent returns. ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/sitelets/datastore/index.html?mn01 ----------------------------------------------------------- * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! 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