If you have stocks that have earnings stability and consistent earnings growth, higher margins compared to their peers, and price growth persistence, they’re probably winners.
If you’ve identified winners in your portfolio, hold on to them through thick and thin, and you’ll be immensely rewarded in the long haul. Oh, and, of course, add to them when they are attractively valued.
Earnings Stability & Growth
Aging and growing populations and advances in technology are reasons that the healthcare sector tends to experience stable growth. The juggernaut in the sector, of course, is no other than Johnson & Johnson (NYSE:JNJ), which has a piece of the pie in the different areas of Healthcare with a Pharmaceutical segment (about 41% of sales), Medical Devices segment (27%), and Consumer segment (14%).
J&J’s has experienced adjusted EPS growth every single year since 2000. It’s no wonder the company tends to trade at a premium P/E despite having been estimated to grow EPS by only about 6% per year over the next 3-5 years.
The market tends to pay up for J&J stock for its stability and consistent growth. Over the last decade or so, if you bought J&J stock at about a P/E of 16, you would have gotten total returns of about 8.5% per year. That’s below the long-term average market returns of about 10%. However, what you get in return is more certainty, more stable earnings, and a smoother ride. As such, I still…
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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