Is Johnson & Johnson a buy?
Johnson & Johnson is one of the largest and oldest American companies. It was founded in 1885 by Edward Johnson along with brothers James and Robert Johnson, taking their surnames as the company name. Since then, the company has grown to the point that Fortune magazine ranks it among the 100 largest companies in the United States.
Initially, the creators' idea was to manufacture and market a line of ready-to-use surgical-grade bandages. But as time went by, Johnson & Johnson added more products to its catalog, although always related to the health area.
This is how it went from bandages to produce a wide variety of items that can be framed in pharmaceuticals, medical devices and consumer goods. All this is marketed around the world with its more than 250 subsidiaries that are located in 60 countries and distribute to the rest.
Of the product categories mentioned above, pharmaceuticals are the ones that generate the most revenue for Johnson & Johnson, representing 50% of the total. This is followed by medical equipment with 33% and consumer products with the remaining 17%, which are marketed under the Johnson's brand.
In addition to the above, another important aspect of this company is that more than 50% of its revenues come only from the United States. Some 23% comes from Europe, 18% from Asia and Africa and 7% from the Americas, excluding the United States. This gives us an idea of how important the American market is for the company.
Johnson & Johnson for investors
If there is a perfect stock it would be Johnson & Johnson for several reasons. The first is that it is one of the most solid and consistent companies out there today. Also, as we mentioned, it is among the largest in the United States.
Another important point is that its share price, although historically not very volatile (which is appreciated), grows year by year. So much so that, if we compare the growth of Johnson & Johnson's share since its foundation with the growth of the SP500, which is taken as a gauge of the American economy, Johnson & Johnson is the winner with a great advantage.
Finally, this company has almost 50 years paying uninterrupted dividends to its investors and this is something that few companies have achieved. To this we must add that they are growing dividends that the last 20 years have increased on average 10% per year. This makes it a must-have stock for any investor.
What are the assets you can trade?
Exchange-Traded Funds or ETFs are a kind of passively managed fund, similar to index funds. They can be described as a merge between stocks and mutual funds. They can be traded like regular stocks, but include a wide diversity of assets and have lower fees.
About Index Funds
In case you want to invest in the long term, and you won't need to withdraw your money in at least five years, index funds can be the best alternative. This type of investment is also great for beginners since the risks are lower. Besides, the variety is wider.
Contrary to common perception, it is very hard to beat the market (although you have probably heard of investors who achieve huge profits).
But besides Warren Buffett and a couple more, not everything is as good as it sounds: when someone brags about having beaten the index, they have probably done so for a short time, or the rates are so high that it ends up being better for you to index (whit minimal commissions). Besides, if something happened once, it doesn't mean necessarily that it will happen again.
The good thing about index funds is that they perfectly solve these two issues: their rates are insignificant and they regularly beat active managers, but in the long term.
About Contracts for Difference
If you have entered this broker previously, you must have noticed that the acronym CFD appears repeatedly. We will explain its meaning now, but first, you should know that cryptocurrency operations on this broker are only CFDs if you short sell or leverage higher than x2 (nevertheless, this is not even available on the platform).
We will also refer to concepts like going short and leverage, in case you are thinking about day trading cryptocurrency or more advanced practices.
this broker allows you to bet both “in the black” and “in red”. For instance, you have the conviction that the Johnson & Johnson will go down, so you clearly think “if it is going to depreciate or go down in price, I'll just wait and go when it has gone down”. Nevertheless, if it really falls, it might mean extra money for you.
The practice known as “going short” will allow you to do that. It functions, roughly, this way:
- Someone lends you, for example, 100 units of Johnson & Johnson, valued at a total of $ 5,000 (these numbers are entirely made up)
- Then, you sell them at their market price, $ 5,000
- As you supposed, the price falls, and the unit of Johnson & Johnson now costs $ 30 instead of $ 50
- Again, you buy the 100 units, but at the current price, $ 3,000
- You pay back the 100 units to the person that loaned them to you
- The rest is yours, so, you will have earned $ 2000
Take into account that it is much simpler than it sounds: we can summarize this whole operation by saying that by trading in Johnson & Johnson you can also make money if you foretell it will go down.
How to use leverage in trading
If you still don't know what “leverage” is, we'll describe it briefly. When trading, it's the capacity of enlarging your investment by borrowing money from the broker. For example, you can enter with $ 100, but if you use x2 leverage, you will be investing $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Assuming that, for example, you are certain that Johnson & Johnson price is going up, and that you have $ 1,000 for “going long”, you should know that you have the option of investing more and making more money.
You could consider asking for a credit, but it is a process that takes time, and by the moment you finally get the money, Johnson & Johnson might be already so expensive (if your guess was right) that investing wouldn't be convenient anymore.
Leverage is like a credit, and you will only have to click a few times to get it! your broker allows you to operate with much higher amounts than what you actually have on the platform's wallet. It is simple, before investing you will see the different options as in the screenshot:
When trading in different markets you can use even more leverage. Why? Because cryptocurrencies usually represent medium-long term investments. However, leverage is used primarily for short-term operations or day trading. But let's see how leverage works.
If for your investment of $ 1,000, you use leverage x2, you will be investing $ 2,000. Your broker puts the remaining amount to reach that figure.
A couple of days later, as you thought, Johnson & Johnson price has risen by 20% and your money has appreciated reaching $ 2,400. But you don't want to take too much risk, so it's time to sell.
You will have to give back the $ 1,000 of leverage and the net profit would be $ 400 (since the other $ 1,000 was your initial investment).
In conclusion, by investing $ 1000 and obtaining $ 400, your net profit would be 40%. That is quite good.
The trick is that the risk of losing out is also there. If everything goes according to plan and the price goes up, you will make more money in less time; but if the value of the asset decreases, you will also lose more in less time.
For instance: if the price falls by 10%, you won't lose $ 10, but twice (the leverage) that figure, that would be $ 20. That is why the terms “Take Profit” and “Stop Loss” are so important when using leverage.
Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.
If you purchased Johnson & Johnson shares at $ 100, you can ask the broker to close when it reaches $ 120. That way, you make sure you won't be blinded by greed and decide to keep waiting in case it keeps going up, which could be a mistake.
Stop Loss is even more important, particularly when trading with leverage, since a small loss could have a significant impact on your wallet. Always remember to set a Stop Loss more conservative than that suggested by the broker.