Stock Spotlight: Johnson & Johnson (JNJ)

The parade of "recession proof" stocks continues here at PowerRatings Featured Stock Spotlight with today's high PowerRating opportunity for investors: Johnson & Johnson (JNJ@JNJ | Quote | Chart | News | PowerRating).

While the airwaves and headlines continue to be filled with anxiety over whether or not the economy has already slipped into the World's Most Anticipated Recession, a number of stocks continue to look impressive from the perspective of a longer-term active investors. This investor is less concerned with what his or her stocks will do next week and more concerned with what his or her stocks will be doing a year from now.

The active investor who uses our Long Term PowerRatings to help find stocks that are both more reliable and better performers than the average stock is no buy 'n' hold chump. We encourage investors to play an active role in their portfolios when using Long Term PowerRatings, selling stocks when their PowerRatings are downgraded below 8 and replacing those stocks with others that have a Long Term PowerRating of 8 or higher.

Why? We believe that this approach works because stocks with Long Term PowerRatings of 8 or higher have been shown to outperform the average stock in our historical testing. Looking back since 1995, and analyzing thousands and thousands of simulated stock trades, we were able to conclude that stocks with Long Term PowerRating of 8, 9 or 10 were higher one year later more than 74% of the time. Compare this to the reliability of the average stock, which was higher one year later less than 68% of the time.

In addition to being more reliable, stocks with high, Long Term PowerRatings have been better performers than the average stock. We found that 8-, 9- and 10-rated stocks tended to average at least 17.13% returns after one year. By contrast, the average stock tended to produce average gains of between 12-13% in a year's time.

This is why Johnson & Johnson is such an easy pick for this week's stock spotlight. With its Long Term PowerRating of 9, Johnson & Johnson belongs to that class of stocks that has not only been more reliable than most other stocks, but also has outperformed them. Specifically, stocks with Long Term PowerRatings of 9 have been higher one year later more than 79% of the time. These same 9-rated stocks, based on our historical testing, have also tended to produced gains of more than 18% after one year on average.

Not only does Johnson & Johnson have an impressive PowerRating, but also the stock comes from an industry group, Major Drug Manufacturers, that has a best-in-class Industry PowerRating of 10.

Industries with PowerRatings of 10 are truly among the best places for investors to look for stocks. Our research into industry group behavior since 1995 revealed that while the average industry had average annualized returns of approximately 14.61%, the highest rated industry groups, those with a PowerRating of 10, earned average annualized returns of more than 35%. That's more than double the rate of the average industry.

Johnson & Johnson shares the top-rated Major Drug Manufacturer industry with other high Long Term PowerRatings stocks such as Merck (MRK@MRK | Quote | Chart | News | PowerRating), which also has a Long Term PowerRating of 9, as well as 8-rated stocks like Eli Lilly (LLY@LLY | Quote | Chart | News | PowerRating), Novartis AG (NVS@NVS | Quote | Chart | News | PowerRating), Pfizer (PFE@PFE | Quote | Chart | News | PowerRating), Abbott Laboratories (ABT@ABT | Quote | Chart | News | PowerRating) and Bristol-Meyers Squibb (BMY@BMY | Quote | Chart | News | PowerRating).

Looking specifically at Johnson & Johnson, we see a stock that recently rallied up above its 200-day moving average early last week and has since been in pullback mode as the stock appears to be retreating toward a test of support at that 200-day moving average. The company reported earnings in late January that narrowly beat both analyst expectations and the year-ago period, and is widely regarded as one of the sort of large-cap, blue chip stocks that is likely to withstand any reduction in consumer spending based on recessionary concerns.

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David Penn is Senior Editor at PowerRatings.net.