Should You Buy Johnson & Johnson Stock Before July 16th?

Key Points

• Johnson & Johnson reports earnings on Wednesday.

• Investors may be paying attention to tariff-related developments more so than the company's actual growth rate.

• Historically, Johnson & Johnson has been a fairly stable stock to own.

• 10 stocks we like better than Johnson & Johnson ›

Johnson & Johnson (NYSE: JNJ) has been a leading healthcare company in the world for decades, and it's one of the most valuable as well, with a market cap of around $380 billion. Known for its long-term stability and dividend growth, it's a blue chip stock that is primarily suitable for risk-averse investors who want to collect a reliable payout.

This year, the stock is up over 8% (as of Monday's close) as it has been outperforming the S&P 500. And with earnings on deck, a strong showing could potentially lift its value even higher. Should you buy shares of Johnson & Johnson before it releases its latest quarterly report on Wednesday?

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Image source: Getty Images.

Could the stock get a boost from earnings?

Johnson & Johnson last reported earnings on April 15, which covered the first three months of the year. Its sales were up by a little over 2%, totaling $21.9 billion for the period. The company achieved strong growth of nearly 6% in the U.S. market, which helped to offset a struggling international market where it experienced a slow down. Overall, the company beat expectations for its top and bottom lines. However, the stock didn't move much on the day, and since then, its shares have risen by less than 2%.

What might move the needle more for investors this time around is if the company announces any initiatives aimed at reducing its tariff risk. U.S. President Donald Trump has threatened a 200% tariff on pharmaceuticals that are imported into the country. While he will give companies time to adapt and the tariffs may not go into effect until well over a year from now, any move Johnson & Johnson makes to get ahead of that (e.g. moving more production into the U.S.) could win over investors.

The healthcare company has previously estimated that it could face a $400 million hit due to tariffs this year, largely impacting its medtech business.

The stock's valuation looks cheap -- but is a discount warranted?

Johnson & Johnson's stock currently trades at a price-to-earnings multiple of 17, which is lower than the S&P 500 average of nearly 25. Even based on what it has averaged over the past five years, the stock looks cheap with respect to earnings.

JNJ PE Ratio data by YCharts

While the company's growth rate isn't terribly high, the healthcare stock trades at fairly light earnings multiple, which is in line with what investors might expect to pay for a business that's growing at a steady rate. And it's not as if it doesn't have growth opportunities ahead. Earlier this year, regulators approved its nasal spray for depression, Spravato, which could bring in $5 billion in annual revenue at its peak.

On the flip side, however, the stock does come with some uncertainty. Top-selling drug Stelara has lost patent protection and sales have already begun to fall. And there's still a dark cloud hanging over the business with respect to its talc lawsuits. Despite multiple efforts to put those legal challenges to rest, the company still faces question marks over how large its payout may end up being for talc products that allegedly caused people to develop cancer. The company is still facing tens of thousands of lawsuits. Given these risks, a discount for the stock may be justifiable.

Is now the time to buy Johnson & Johnson stock?

Odds are, Johnson & Johnson stock isn't going to rise or fall significantly after it reports earnings. This is a low-volatility stock that has averaged a beta of around 0.40. Barring something completely unexpected and unforeseen, I'd expect shares of Johnson and Johnson to move no more than a couple of percentage points after earnings.

If you're looking for a good dividend growth stock to buy, it may be worth adding Johnson & Johnson to your portfolio for its 3.4% yield. At 17 times earnings, it is decently priced and offers investors a good margin of safety for the risks that come with it. However, there isn't an overwhelming reason to rush to buy it; you may want to wait after it reports earnings to make a decision on the stock.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.