2million - My Journey to Financial Freedom

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Tuesday, February 14, 2006

Adding a New Stock To My Portfolio (JNJ)

If you are a regular reader you know I have been a fan of pharmaceuticals for awhile. I have been steadily adding to my holdings of Pfizer and Merck for the last several years. However I am also a fan of the whole healthcare industry.

My Healthcare Portfolio

Holding

Ticker

Est Act Value

Plan

Merck

MRK

$ 4,500.00

Company DRIP

Pfizer

PFE

$ 15,200.00

Company DRIP

Medtronic

MDT

$ 3,500.00

Company DRIP

Healthstream

HSTM

$ 300.00

Etrade account



Towards the end of last year I stopped contributing to these holdings for a couple of reasons. 1) I was trying to increase my available cash since I was house shopping and 2) I felt I had a large enough position in these stocks (PFE and MRK in particular) for now relative to their valuation since they had bounced off there lows.

However, I still like the healthcare industry. There is a lot to love:
-positive industry; they help people
-generally attractive dividend yields
-people will pay almost anything get healthy, cost is not an issue

Johnson & Johnson (JNJ)
I have been eyeing Johnson & Johnson for awhile. I like the company as a long term holding, and recent weakness is presenting me an opportunity to jump in.

The case for JNJ:
-I think JNJ will thrive over the next 50yrs as the baby boomer generation get older, people live longer, and new medical technologies are developed
-attractive dividend yield (~2.30%, and hopefully another dividend hike soon)
-JNJ has raised their dividend around 15% annualized over the past 15+ years.
-S&P currently rates JNJ a strong buy
-to quote a recent article "for patient investors, any opportunity to buy JNJ when it's out of favor is one to grab"
-JNJ just passed on buying Guidant and has been paying for it on Wall Street, but I think its a sign of shrewdness by the company's leadership, they knew what price the would pay to make the purchase a profitable business decision and stuck to it.

Unfortunately I haven't invested in Johnson & Johnson in the past, because I couldn't use their company sponsored DRIP. The plan requires ownership of at least 1 share to enroll and I couldn't justify the expense to purchase 1 share through normal means.

However, now that I have become comfortable with my Sharebuilder account, I am going to use a JNJ dividend reinvestment plan as my first real investment through my Sharebuilder account (see post regarding Sharebuilder vs DRIP fees). This will allow me to run it through the course of regular contributions, etc. If its successful I will most likely consolidate any accounts with excessive fees into my Sharebuilder account.

I am going to start with an initial investment in JNJ of $500 + $4 purchase fee.

10 Comments:

  • Your blog informed me of Sharebuilder in the first place. Thanks. You mentuoned that you got a $50/$55 credit which is sweet, Igoogled the offer before opening an account and fount a business promo for $65! Lovin it. The reason I mention any of this is because you're about to drop another trade for $4 dollars. While it is by far the lowest I;ve ever run into, wouldn;t it be great if it were free!

    I called customer service after opening the account to ask a few questions regarding the $65 bonus and when trades were made, ... Out of the blue, the very accomadating and pleasant customer service lady said she'd give me 6 free trades! Wow! Hook it up!! That had never even crossed my mind during our discussion.

    Being a huge fan of PFE and JNJ, I plan to use them to buy my first shares of the two companies and begin the drip plans.

    You may be able to ask for a free trade or two. Obviously it is within their capability and I only had $50 bucks in the account. Bought eBay @ $40.

    I hope this helps.

    By Anonymous Ryan, at 8:01 PM  

  • It would make much more sense to buy a no-load/low-cost pharma/healthcare mutual fund or ETF in place of the individual stocks. You get more diversification, exposure to some biotech names and it is usually cheaper.

    By Anonymous Anonymous, at 9:36 PM  

  • Hey, I read that article recently on Business Week magazine and have been also thinking about opening a position with JNJ.

    I currently own shares of Pzifer and I'm happy about the past 5-day's action in the stock price. I think there's so much upside to Pzifer and like you said, pharmas' help people; the company is only going to grow. The stock price will catch up soon. This is definitely a good investment for the long term and I think at current prices, PFE is unlikely to be affected by temporary market downturns.

    JNJ looks attractive at these prices (esp. under 60). Between JNJ and PFE, I would pick PFE because PFE seems to be on the move up and it's 43% off the 5-year high, whereas JNJ's chart is still recovering and it is about 16% off the 5-year high. PFE also pays a higher dividend payout.

    If you have the extra money, diversify your holdings and allocate a reasonable portion to JNJ. Both companies shall do well in the long term.

    By Blogger Smarty, at 1:06 AM  

  • Hi 2million... have you looked into interactivebrokers.com? They have some extremely low commission fees and a friend of mine has used them, but I must admit that I have never purchased stock through them.

    Your story is somewhat parallel to mine, at least up until a couple of years ago. I graduated from an electrical engineering program in Canada in 1999 and elected to do a Master's in elec. eng. rather than going to work. In November of 2001, I went to work at IBM Canada and began growing my own net worth. Unfortunately, my department had grown far more aggressively than had demand for the products my department installed, so I spent a couple of years watching people let go before my own turn came up late in 2003. I have since gone on to do an MBA and am now looking for a new career with which to begin rebuilding my net worth.

    By Anonymous Anonymous, at 10:12 AM  

  • Hey Ryan,
    Thanks for the tip. I think I might have to call Sharebuilder and give it a shot.

    anonymous,
    I have never tried an ETF yet, but maybe someday I will. Diversification has its pros/cons and an ETF might have its place in my portfolio in small doses.

    smarty,
    your right, I still like PFE, I am just using this as an opptunity to jump into JNJ in small doses.

    Haven't heard of interactivebrokers.com looks like it has smaller than usual trading fees. Might be a good place to aquire stock for DRIPs that require ownership.

    By Blogger 2million, at 4:15 PM  

  • Raj says...

    I am planning to invest some money into stocks. What sites ( scott trade, ameritrade are useful). I want to get away with minimum account that has no maintenance etc. in other words no fee if u dont have any transactions for 6m months etc etc. I may just trade 3-4 times a year not more. Any help would be useful. This website is awesome. Read it almost every second day.
    Thanks for the info..it really helps

    By Anonymous Anonymous, at 7:03 AM  

  • Raj,

    I think Sharebuilder would be a good choice for you. There are no inactivity fees (your first month is defaulted to the Standard program SO it includes 6 free trades) BUT YOU MUST downgrade to the free program (otherwise it will cost you $12 for remaining on the Standard plan).

    After that, you will get charged $4 per trade and you can do it as sparingly as you want.

    By Blogger Dave, at 9:05 AM  

  • PPH....

    By Anonymous Anonymous, at 12:48 AM  

  • One of the anonymous comments mentioned that it would make more sense to buy a no-load/low-cost pharma/healthcare mutual fund or ETF in place of the individual stocks - I would like to know what their thinking is one this. I am sure they will answer with things like more diversification and less risk. However, as another investor who invests in individual stocks as well I think investing like that takes a lot of the fun out of it. Yes, I know investing is a serious thing, but I have fun picking individual stocks. Simply selecting a mutual fund or ETF to me is boring and reduces my "fun" factor. But that is just me...

    By Anonymous The Dividend Guy, at 7:16 PM  

  • Small Business owners are largely forgotten. Thats why I only focus on them. I have experience several members of my family file bankruptcy due to small business failures. I also I suffered through 2 destroyed businesses due to failure however, in my failings I have learned some of the secrets to success. (Who can say they know it all?)

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    By Blogger davidbaer, at 11:27 PM  

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