Should You Buy Kenvue Stock After Its 30% Plunge?

Key Points

• A controversy over a possible link between Tylenol and autism is causing headaches for Kenvue.

• The company's business has also been underperforming, leading to a CEO change.

• However, Kenvue's dividend could be appealing to income investors.

• 10 stocks we like better than Kenvue ›

Johnson & Johnson (NYSE: JNJ) spun off its consumer health unit as a separate entity in 2023. The new business, Kenvue (NYSE: KVUE), inherited a broad lineup of popular products, including Band-Aid adhesive bandages, Listerine mouthwash, Tylenol pain reliever, and Zyrtec allergy medicine.

With an arsenal of household names in its lineup and a solid dividend, Kenvue seemed to be the kind of stock many income investors would love. However, this healthcare stock has delivered a decidedly disappointing performance since the spinoff two years ago. And it recently experienced another major sell-off. Should you buy Kenvue after its 30%+ plunge this year?

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Image source: Getty Images.

Kenvue's Tylenol headaches

At a press conference last week, President Donald Trump stated that Tylenol use by pregnant women could lead to higher levels of autism in children. The president repeatedly recommended that pregnant women shouldn't take the over-the-counter pain medication. Trump stated, "Taking Tylenol is not good -- I'll say it: It's not good."

The U.S. Food and Drug Administration (FDA) quickly began moving forward with changing the labels for Tylenol and other acetaminophen products to warn that use of the medication by pregnant women may be related to an increased risk of autism and other neurological conditions in children. In addition, the FDA sent a letter to physicians across the country that said, "In the spirit of patient safety and prudent medicine, clinicians should consider minimizing the use of acetaminophen during pregnancy for routine low-grade fevers."

Kenvue's share price immediately nosedived. The administration's suggestions of a link between Tylenol and autism could also open the floodgates for lawsuits against the drugmaker. In a story about the controversy, NPR cited one attorney who said his law firm had received more than 1,000 calls from potential clients interested in suing Kenvue in the week following the press conference.

More to the story

Kenvue quickly responded, saying: "We believe independent, sound science clearly shows that taking acetaminophen does not cause autism. We strongly disagree with any suggestion otherwise and are deeply concerned about the health risks and confusion this poses for expecting mothers and parents." The company wasn't alone in its rejection of claims that taking Tylenol during pregnancy increases the risk of autism in children.

The American College of Obstetricians and Gynecologists released a statement saying, "It is highly unsettling that our federal health agencies are willing to make an announcement that will affect the health and well-being of millions of people without the backing of reliable data."

The American Academy of Pediatrics issued a press release following the press conference stating:

Today's White House event on autism was filled with dangerous claims and misleading information that sends a confusing message to parents and expecting parents and does a disservice to autistic individuals. Studies have repeatedly found no credible link between life-saving childhood vaccines and autism.

Even the FDA's letter to physicians seemed to dial down the rhetoric somewhat. It acknowledged that a causal relationship between maternal use of Tylenol and childhood autism "has not been established and there are contrary studies in the scientific literature." The FDA also stated, "Acetaminophen is the safest over-the-counter alternative in pregnancy among all analgesics and antipyretics."

But the alleged Tylenol-autism link isn't Kenvue's only headache. Its stock was already down significantly year to date before President Trump's press conference. Kenvue's business has underperformed, prompting its board of directors to oust former CEO Thibaut Mongon in July and announce a review to look at strategic alternatives, including simplifying the company's product portfolio.

Buy this beaten-down stock?

It remains to be seen how much long-term damage the autism controversy will cause for Kenvue. With the quick and strong backlash from reputable medical groups, the company's Tylenol sales might not be impacted much.

Kenvue's dividend remains appealing, with a forward yield of 5.1%. The company is also a member of the elite group of stocks known as Dividend Kings that have increased their dividends for 50 or more consecutive years, a status it inherited from J&J.

Meanwhile, thanks to the steep sell-off, Kenvue's valuation is attractive. The stock trades at a forward earnings multiple of 14.8.

Should investors buy this beaten-down stock? For many investors, the answer is "no." Kenvue faces too many challenges that go beyond the recent Tylenol issue. However, income investors might want to seriously consider buying the healthcare stock at a discount.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.