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Johnson & Johnson Stock Is a Gamble, but an Interesting One

Josh Enomoto

With the markets still digesting the events of last week, multiple companies are riding choppy waters. However, few names have as many question marks as Johnson & Johnson (NYSE:JNJ) stock. A household staple and an American icon, Johnson & Johnson has suffered from severe scandals. Even though JNJ stock has calmed down in recent sessions, investors rightfully remain skeptical about JNJ.

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Obviously, the company’s most pressing controversy is its asbestos-contamination scandal. In December 2018, the company lost a motion “to reverse a jury verdict that awarded $4.69 billion to women who blamed their ovarian cancer on asbestos in the company’s baby powder and other talc products,” according to The New York Times. Immediately, the devastating news cratered Johnson & Johnson stock.

Worse yet, the company’s PR crisis was only beginning. According to court documents, Johnson & Johnson had known for decades that its talc-based products were possibly contaminated with asbestos. However, management decided to keep that information from leaking to the public. Naturally, the image of one of America’s most trusted brands turning on their customers badly hurt JNJ stock.

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However, JNJ stock has stabilized in recent weeks.

Still, the weight of the asbestos scandal has loomed over JNJ stock. Several lawsuits related to the matter still could impose meaningful liabilities on Johnson & Johnson stock. Furthermore, the diversified pharmaceutical giant must deal with a trial in Oklahoma. The state alleges that JNJ played a significant role in America’s widespread opioid crisis.

Can Johnson & Johnson stock finally catch a break?

A Dark Cloud Hangs Over JNJ Stock

Considering how terrible these controversies are, it’s tempting to say that Johnson & Johnson stock offers no redeemable value. It’s not just the scandal itself, which again is horrific, shameful, and perhaps unforgivable; additionally, the company’s good reputation has evaporated  almost instantaneously.

Back in 2015, Interbrand recognized Johnson & Johnson as one of the world’s top brands. At that time, the brand consultancy firm declared that the company “evokes some of the most cherished childhood experiences.” That was one of many reasons to buy JNJ stock: another was that the company enjoyed multiple, non-cyclical revenue channels.


But over the past year or so, the organization has nuked its family-friendly image. Now, when people see Johnson & Johnson, they see the worst thing possible: an innocent person dying of cancer.

If that wasn’t enough, the owners of Johnson & Johnson stock will face a dark cloud that permeates throughout the brand. According to the Harvard Business Review, corporate scandals have a long shelf life.

For instance, automaker Volkswagen was beset by a massive controversy several years ago. In order to meet government emissions regulations, it essentially hacked monitoring components to produce falsified data. The scandal took a very long time to recover from, and it is still negatively affecting  the company’s reputation.

And in VW’s case, only  emissions stats were involved. In JNJ’s  scandal, people died. Undoubtedly, the scandal will prevent many people from touching JNJ stock.

Johnson & Johnson Stock Is Only Compelling for Speculators

For conservative investors, the most reasonable action is readily apparent:  they should not jump into JNJ stock.

As I mentioned above, the asbestos scandal is both atrocious and extensive. Moreover, in many cases, it takes companies a long time to recover from controversies. Also, you should realize that there are other diversified pharmaceutical firms that don’t have the baggage of Johnson & Johnson stock.

But if you’re a risk-tolerant speculator, JNJ stock might have some attraction for you. First, scandals don’t always result in indefinite doom. For a prime example,  look at Equifax (NYSE:EFX). Although the credit-monitoring agency compromised millions of Americans’ private data, EFX stock eventually recovered. In fact, EFX is one of the top-performing equities of 2019.

Second, JNJ stock has done well from a technical standpoint, despite the obvious headwinds it’s facing. It may not hit all-time highs anytime soon. However, the shares are still riding a long-term bullish trend channel, which is quite surprising, given the scandal’s grievous nature.

As a cautionary note, I must stress that JNJ stock is not for the faint of heart. However, its steep discount provides an attractive entry point into the shares of this solid (other than its scandal) and relevant company.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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