Is Johnson and Johnson’s Bet on Mental Health a Good Sign for Investors?

Johnson and Johnson (NYSE: JNJ) has been making the news rounds lately for two reasons. The first is an investigation on behalf of shareholders regarding federal securities laws, but the details aren’t ready yet. Share prices did go down on this news, but that isn’t necessarily the long-term concern here, with share prices having already partially recovered.

The greater point of interest and the one uncertain investors should focus on is the recent $14.6 billion acquisition of Intra-Cellular Therapies Inc., a major player in mental health and central nervous system drugs, and a business that was expected to grow significantly over the next half a decade. (This is also not JNJ’s only acquisition of late, as they acquired Shockwave Medical last year for $13.1 billion. With its large cash and debt capacity, JNJ may look to acquire other companies as well.)

For JNJ, this acquisition offers access to CAPLYTA®, a drug for schizophrenia and certain types of bipolar disorder. It also gets compounds in research for generalized anxiety disorder, Alzheimer’s disease, and more. A single breakthrough from such compounds could lead to a huge return on this investment alone.

Naturally, this is a risk for JNJ, but there’s reason to still feel optimistic about the company despite some recent bumps in the road for them and some acquisitions (which always come with some risk).

Our Zen Ratings system currently has JNJ at a rating of “B”, which puts it in the top 20% of stocks we cover. More specifically, stocks with a Zen Rating of B had an average return of +19.88 per year, well above the market average.

More specifically, we also have Zen Rating component grades for those who want more of a breakdown of why a stock is doing well according to our system. In JNJ’s case, it has a B component grade in Value, Safety, and Financials, as well as from our artificial intelligence algorithm. This all corresponds to JNJ’s reputation as a large, stable blue chip stock that is a safer bet than newcomers onto the market.

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In JNJ’s case, things look nice, and analysts generally agree, receiving a consensus rating of “Buy” among the analysts we track. While few offered additional commentary, current notes on the stock hold it as a strong long-term pick for a portfolio.

Reasons to Keep Watch on JNJ

• Despite some concerns over an investigation, the news is unlikely to affect JNJ in the long-term to a considerable degree
• Recent acquisitions can make JNJ even more capable in areas such as neuroscience and mental health drugs, two markets that are only expected to grow over time.
• It has a Zen Rating of B, a positive consensus among analysts, and there are few signs of major instability in the company's future.

To help you keep a watch on JNJ and get all the information you need for future portfolio picks, you should get WallStreetZen Premium if you haven’t already. With it, you get all of the fundamental information you need, an unlimited watchlist to keep track of JNJ and any other stocks you might want, and analyst opinions.

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