Johnson & Johnson (JNJ US)




Position:  LONG

Upside target: $182.

Recommend stop-loss: $134.


Peet Serfontein, Tlamelo Ntabeni

JNJ manufactures health care products and provides related services for the consumer, pharmaceutical, and medical devices and diagnostics markets.

Technically, the stock remains in an inclining channel (black parallel trendlines on the main chart as well as the insert) which makes it attractive as an investing option. The expectation is that the price might test the upper channel which is our profit target. The price objective in the event of a breakout from the inclining channel pattern is highlighted by the vertical dotted trendlines.

Relative Strength Index (RSI) forward calculations suggest that the share will be in overbought territory at around $185, which classifies our target price of $182 as realistic.

Fundamentally, JNJ is well diversified and boasts a strong footprint across many territories.

Technical Analysis:

  • The on-balance volume (OBV) indicator – which uses volume flow to predict stock price changes – is currently moving sideways, indicating that money remains in the stock.
  • The stock recently crossed above its 200-day simple moving average which signals that the long-term trend is now bullish.
  • Our entry range is set at R134 to R148 or close to the current reference price of R147.78. A fall below the suggested entry range suggests that a structural change in the trend has occurred and provides reason to negate the trade idea.
  • Our upside target is set at $182 (23% upside potential from current levels). This target price is close to the price objective (see the black dotted vertical trendlines) of the inclining channel pattern. Harvest profits close to this level.
  • The share will be in overbought territory around $185, leaving limited upside potential from the profit target.
  • Time to exit is around end of March 2021, taking a medium-term stance, with the option to extend for a longer period.
  • A price below $134 (9.3% downside potential from current levels) remains a major concern for downside potential and is recommended as a stop-loss. This level coincides with the midpoint of the inclining channel pattern.

Long term fundamental view:

  • JNJ US has grown to become the largest most diversified healthcare giant globally with operations in virtually all countries in the world. Operations span across three divisions: pharmaceuticals (51% revenue 58% profit); medical devices (32% revenue, 32% profit) and consumer healthcare (17% revenue 10% profit).
  • The group’s second quarter numbers beat consensus sales and earnings per share (EPS) estimates, driven by a much better medical devices performance with sales at $4.2 billion compared to expectations of $3.4 billion.
  • Recovery in sentiment looks likely following a string of negative publicity in 2019.
  • Sentiment is more likely to be driven by the evolution of the Covid-19 outbreak, with first data from JNJ’s Phase I vaccine trial potentially due by end-September.
  • The Covid-19 pandemic has highlighted the pharmaceutical industry’s defensive nature.

In terms of downside risks, the US political landscape remains a challenge. The firm has also faced several product related challenges. A weak economic environment can have an impact on final demand.