Three months ago, I talked about sector rotation and how the Smart Money was getting a bit defensive.
The Markets Are Getting Defensive, So Keep An Eye On Johnson & Johnson
The FAANG stocks have carried the Markets the last several years. However, this earnings quarter, the FAANG stocks have lost a tooth. Google and Apple did well, Amazon sold off, but Netflix and Facebook got slammed.
Quite simply whether the Markets are topping or in an down spiral, people still get sick and need to eat. Thus, JNJ is one stock to keep an eye on, let go to the charts for details.
Daily Chart (Entry) – the chart suggest to go long on a pull back into the demand zone at $128.50 with targets at $138 and a final target at $144.
BEFORE
AFTER
JNJ went on to hit both targets and now it’s time to hit the register because it sitting in a monthly supply zone. I’m not saying JNJ can’t go higher, but what I’m saying is it’s no longer on sale.
Valuation is also important, so investors should note that JNJ has a Forward P/E ratio of 17.81 right now. This valuation marks a premium compared to its industry's average Forward P/E of 14.76.
Also, we should mention that JNJ has a PEG ratio of 2.27. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. The Large Cap Pharmaceuticals was holding an average PEG ratio of 2 at yesterday's closing price.
To minimize one’s risk to JNJ, but to stay exposed to the health care sector, one may consider the Health Care Select Sector SPDR Fund, XLV. XLV seeks to provide exposure to companies in the pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology industries that are represented within the S&P 500.
NOTE: JNJ is its top holding.
As you can see from the chart, the XLV wasn’t immune to Red October, but may hold up better than other sectors during the next correction/downturn. Immediate areas to watch are the weekly levels at $94.50 on the top side and $82 and $87 on the down side.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
Published on
by rollandthomas
