He is also a columnist for Forbes’s prestigious “Portfolio Strategy” column. Indeed he is one of the longest-running columnists in the magazine's over 85-year history. For many years he has made comments on money management and market and he has always been recognized for making several accurate market calls, often in opposition to Wall Street's forecasts.
That is not all; Ken has also written best sellers on finance.
In terms of investment, he has a sound strategy: Supply and demand of securities determines their prices. Fisher Investments' team believes that all widely known information has already been priced into the market. To add value, he says, and I quote, “It is necessary to identify information not widely known, or to interpret widely known information differently and correctly from other market participants."
And how does this strategy applies in practice? Let's look at Johnson & Johnson (JNJ), his new buy.
Johnson & Johnson is the leader in the health care industry with a diverse revenue base, a robust pipeline and a wide economic moat.
It can be divided into different segments, namely, medical devices, over-the-counter medicines and pharmaceutical markets. The pharmaceutical division contributes with over 35% of the total revenue, while the medical devices segment and diagnostic group represent a 40%. The consumer division closes this cycle.
Apart from the existing product lines, the company is making efforts that are resulting in new products. All these lines cooperate with substantial cash flow. Indeed, this healthy cash flow is close to 20% of sales.
For the last 45 years, the strong cash generation has enabled the firm to increase dividends and it expects to continue doing so. Furthermore, it allows Johnson & Johnson to take advantage of acquisition opportunities that boost growth too.
But apart from this general overview, as an investor, I need to go to the specifics, so it is essential to consider different issues, such as last quarter results and valuation.
In terms of last quarter results, Johnson & Johnson has largely matched expectations. Total sales increased 3% with new product launches.
Although EPS grew only 1% due to selling and marketing costs, J&J increased the bottom end of its 2011 EPS guidance range by 3%, and took target to $4.95-$5.00.
In the pharmaceutical division, drug sales increased 5% versus the prior-year period.
The company is in a good position to replenish its portfolio of branded drugs. Indeed it has been authorized to trade the Edurant for HIV, Zytiga for prostate cancer and Incivo for hepatitis C, which adds three new potential blockbusters for the company.
As regards devices, the growth has not been astonishing — only 2%. This moderate increase is expected to continue until the economy across the world improves.
In the consumer division, there has been a growth of 1%. This is due to manufacturing problems that weigh on OTC sales. Although forecasts tell that the division will remain week, a steady growth will return in the second half of 2012 when consumer OTC manufacturing fully returns to its path.
EPS increased at a lower rate as the company increased marketing support in drug launches. Management expects this trend to be reverted in 2012.
In terms of valuation, shares have been valued at their lowest levels in 30 years.
Nevertheless, the current yield of 3.55% is near the highs, thus offering investors and opportunity.
Furthermore, there is a rising dividend payment trend which is expected to continue.
In a nutshell, JNJ is worth investing because it has steady earnings and dividend growth, P/E is at its historical lows, yields are at historical highs and least but not last, the company is rated A+.