In our most recent assessment, we have assembled a comprehensive overview showcasing the 13 Supreme Stocks of Exceptional Caliber At Present, selected based on the current preferences of hedge funds. This composition will focus on Johnson & Johnson’s (NYSE:JNJ) esteemed rank within these elite high-quality stocks.
The investment climate of 2024 bears scarcely any resemblance to the investment norms that originated in the 1950s. Investors today face an enormous challenge in sifting through an abundance of stocks and myriad data points and market directives to unearth real investment treasures. Within this volatile ambiance, the identification of ‘quality’ stocks becomes imperative, and extensive financial studies provide insights into discerning such worthwhile investments.
Scrutinizing a firm’s financial statements is a time-honored technique to assess factors such as profit generation, efficiency, expense control, utilization of assets, and more. Financial treatises emphasize these attributes, delineating the essentials that distinguish a stock of quality. Renowned scholarly work from Research Affiliates delineates five earmarks of high-quality stocks: consistent earnings, strong balance sheets, impressive operational profitability, sound accounting, and shrewd investment maneuvers. The research also concludes that elements like investment style, dividends, earnings power, and accounting methods considerably correlate with future stock returns.
It raises an intriguing enquiry regarding how quality stocks fare compared to their average counterparts. Throughout the preceding year, amidst prevailing market narratives such as artificial intelligence, inflation, interest rates, and macroeconomic expansion, ETFs oriented towards quality stocks observed an increment ranging from 12% to 27%. This aggregates to an average slightly lower than the 23% upsurge the S&P 500 registered in the concurrent timespan. Yet, those who judiciously cherry-picked the apt quality stocks witnessed returns on the higher end of this spectrum, outdoing the general index.
ETFs and scholarly investigations are not the solitary sources acknowledging the virtues of quality stocks. Cliff Asness’ AQR Capital Management, a hedge fund with an affinity for quality equities, oversaw an immense $58 billion in its 13F portfolio by the first quarter’s end of 2024, according to data from Insider Monkey. AQR champions a Quality Minus Junk (QMJ) methodology, spotlighting stocks with robust shareholder yields, growth prospects, profitability, and competent management. A closer inspection of AQR’s favored equities has been provided in our compendium entitled 13 Best Stocks To Invest In According To Billionaire Cliff Asness.
Before we proceed to discuss top-tier quality stocks worthy of consideration, a more expansive observation of the stock market is imperative. Currently, the world of investment is rife with conjecture regarding the anticipated downticks in interest rates. The most current insights emanate from the Personal Consumption Expenditure (PCE) index update by the Commerce Department, which recorded a steady 2.7% inflation rate in the US as of April 2024—still eclipsing the Federal Reserve’s 2% goal. The statistics also alluded to downward trajectories in consumer expenditures, which bear implications for the economic well-being and the general movement of the stock market. Echoing the CME Fed Watch Tool, close to half of the survey participants expect a 25 basis-point reduction in rates by September, with a minority forecasting steeper cuts.
Armed with these revelations, we’re primed to shed light on a number of prominent stocks that have garnered the favor of astute hedge funds.
Our Approach
Our strategy in compiling this eminent list of quality stocks involved examining the 30 most sizable constituents of a highly-regarded quality stock ETF and accentuating those with the most heightened hedge fund interest in Q1 2024.
We wish to acquaint you with Insider Monkey, a platform dedicated to investment, which diligently follows corporate insiders and hedge fund transactions. Our approach is informed by emulating leading hedge fund equity positions, an endeavor that has consistently outperformed market returns. Since May 2014, our quarterly newsletter, featuring an amalgamation of choice small-cap and large-cap stocks, has achieved a 275% return, triumphing over its benchmark by 150 percentage points (access the complete dossier here).
Johnson & Johnson (NYSE:JNJ), celebrated for its consumer products and individual health merchandise, concluded May 2024 on an ascending trajectory with its tactical acquisition of a medical appliance enterprise. This astute manuever diversifies J&J’s assortment and paves the way for fresh sources of income. The prevalent analyst sentiment sets the one-year target price for J&J at $172.16, recommending a Purchase stance on average.
At the onset of 2024, Johnson & Johnson secured investments from 80 hedge funds among the 919 tracked by Insider Monkey. A noteworthy advocate was Ken Fisher’s Fisher Asset Management, possessing shares amounting to an impressive $1 billion.
Johnson & Johnson’s stock performance over the past decade has culminated in a 160% profit, lagging behind the S&P 500’s 212% increment. This disparity prompts contemplation of its ability to eclipse market results moving forward. Nonetheless, the prospective price-to-earnings (P/E) ratio intimates that it may currently be underpriced. In addition, J&J boasts a vigorous pipeline of over forty innovative products engaged in advanced phase clinical trials, which could boost its stock outlook substantially.
An internal reconfiguration led Johnson & Johnson to segregate its consumer health arm, engendering Kenvue Inc (KVUE), specializing in household health brands like Tylenol, Band-Aid, Listerine, and Neutrogena. Concurrently, Johnson & Johnson will intensify its focus on pharmaceuticals and medical apparatus sectors. Oakmark Funds has shared illuminating thoughts on this matter.
Detached from Johnson & Johnson in May of 2023, Kenvue Inc. (NYSE:KVUE) has taken the helm as the pioneering independent business in consumer healthcare. With renowned trademarks such as Neutrogena, Listerine, Tylenol, and Band-Aid—all of which consistently lead in their respective categories—the enterprise enjoys robust brand recognition. However, in spite of its formidable stature, Kenvue’s inaugural stock market year witnessed a dimming due to legal entanglements and slumping share within some market niches. Present-day valuation of Kenvue shares stands at 16.5 times past profit margins, considerably below the collective market and its consumer health and consumer packaged goods sector peers. There seems to be potential for recovery, as it offers Kenvue a possibility to hone its internal efficiencies and reinvest savings to enhance product innovation and marketing endeavors, fostering an uptick in growth and solidifying brand equity.
“Legal hurdles have wrought an adverse effect on the parent company Johnson & Johnson’s market value. They are negotiating a $6.475 billion settlement proposition to reconcile numerous requests for restitution. Accusations implicate their talcum products, notably the infamous baby powder, as containing asbestos, potentially heightening ovarian cancer risks. J&J’s strategy includes invoking the bankruptcy of its subsidiary, LTL Management, in a bid to definitively settle most talc-related legal issues. The judiciary has negated such bankruptcy-linked approaches by the company before. Nevertheless, Johnson & Johnson upholds the integrity of their goods and has persuaded a notable group of the plaintiffs’ counsel to support their settlement efforts. Attaining 75% endorsement of the compensation is vital to thwart further litigations. Johnson & Johnson has already incurred substantial costs for previous mesothelioma and protection litigations for consumers. However, in our perspective, until Johnson & Johnson completely recovers from this litigious mire, the projection for robust stock earnings remains uncertain.”
Ultimately, Johnson & Johnson clinches the 12th berth among the 13 preeminent stocks of high quality available for procurement currently. For those intrigued, the 13 Optimal Quality Stocks to Acquire Now compilation delineates additional industry-leading stocks captivating hedge fund interest. Our assurance in quality stocks stands unwavering, though we exhibit heightened optimism for the burgeoning potential inherent in AI stocks, which may outstrip superior quality stock returns within a shorter frame. For investors in pursuit of a particularly undervalued AI enterprise that promises greater prospects than NVIDIA and trades at under five times its revenue, we endorse perusal of our exposition of the most economical AI equity.
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