Can Johnson & Johnson’s Stock Outperform S&P 500 When Coronavirus Crisis Winds Down?

by Trefis Team
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Going by the trends seen during the 2008 economic slowdown, it’s likely that Johnson & Johnson (NYSE: JNJ) stock could bounce back strongly, but it may not outperform the broader market on the way up, as the coronavirus crisis winds down. S&P fell over 2x compared to Johnson & Johnson’s stock in the recent meltdown. Similarly, in the 2007-08 crisis, S&P fell 2.4x compared to Johnson & Johnson stock, reflecting the outperformance of Johnson & Johnson’s stock. But while rebounding from the lows, recovery for the stock was not as swift as it was for the S&P 500.

On Monday, March 9, the stock markets saw their biggest sell off since the 2008 crisis. There were two distinct trends driving the sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production. Johnson & Johnson stock fell 4% on Monday and is down by a total of 8% since early February, considering the impact that the outbreak and a broader economic slowdown could have on the company’s sales, both in China and rest of the world. The overall decline in consumer spending in China and supply chain disruptions from China are the key cause of concern for Johnson & Johnson in the near term. Moreover, over 18% of Johnson & Johnson’s total revenues are generated from the Asia Pacific region, which has been the worst impacted by the outbreak.

Johnson & Johnson has been on a steady growth trajectory, primarily led by its pharmaceuticals business, which now accounts for over half of the company’s total sales. Within pharmaceuticals, the company has seen massive growth in its oncology and immunology drugs portfolios, led by regulatory approvals for multiple indications for its key drugs, Darzalex and Imbruvica. In our analysis on Johnson & Johnson Revenues, we discuss in detail the factors that are driving the company’s growth. It appears the company is in a strong position to benefit from its oncology and immunology portfolios in the coming years, and the recent drop in stock prices should not be seen as worrying signs for long term investors.

In this analysis, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500. View our complete dashboard analysis on 2007-08 vs. 2020 Crisis Comparison: Johnson & Johnson Stock Compared with S&P 500.

Johnson & Johnson Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Johnson & Johnson stock declined by about 4% on Monday, March 9th, and the stock is down by about 8% since February 1, after the WHO declared a global health emergency.
  • The S&P 500 declined by 7.6% on Monday and has fallen by 17.5% since February 1.

Johnson & Johnson versus the S&P 500 During 2007-08 Financial Crisis

  • JNJ stock declined from levels of around $45 in October 2007 (the pre-crisis peak) to levels of around $36 in March 2009 (as the markets bottomed out) and recovered to levels of about $47 in early 2010.
  • Through the crisis, JNJ stock declined by as much as 21% from its approximate pre-crisis peak. This marked a much lower decline compared to the broader S&P, which fell by as much as 51%.
  • The stock recovered from the lows, rising by 32% between March 2009 and January 2010. However, the growth was slower than the S&P, which rose by about 48% over the same period.

Conclusion

  • While Johnson & Johnson stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back, as the crisis winds down, though it may not potentially outperform the broader S&P on the way back up, given it performed better on the way down.
  • In comparison, another pharmaceutical player, Bristol-Myers Squibb, saw higher decline and recovery over the 2007-08 crisis.

For more detailed charts and a timeline of the 2007-08 crisis, view our dashboard analysis 2007-08 vs. 2020 Crisis Comparison: Johnson & Johnson Stock Compared with S&P 500.

 

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