JNJ Stock: Competition Has a Leg Up
Johnson & Johnson (NYSE:JNJ) has always been a trusted name for anyone who has ever sought out any type of medical or personal care product, including shampoo, bandages, and over-the-counter medications. Johnson & Johnson operates with three segments; “Consumer Healthcare,” Pharmaceuticals,” and “Medical Devices.” They have amassed a huge range of products that cater to many medical and non-medical needs. JNJ stock has done well for investors in 2016, up 18% year-to-date.
As a parent, I am guilty of shopping for brand names I am familiar with because, when it come to my family, I want the best products, from companies that are also accountable for those products. Products that contain JNJ on their packaging leave me feeling safe and secure with my purchase.
A name that is not as distinguished as Johnson & Johnson, and probably not as well-known by parents, is Natus Medical Inc (NASDAQ:BABY). The stock ticker alone should give you some sense of what segment of the population around which this company bases its products and services. Natus Medical is the leading manufacturer and service provider for medical devices that cater to newborn care. I actually prefer companies that focus on one niche aspect, as all of their attention is focused on one goal. In this space, I believe that Natus medical has a leg up on Johnson & Johnson.
In terms of valuation, BABY stock has a tiny market cap of $1.36 billion, compared to JNJ stock’s gargantuan market cap of $325.0 billion. These companies are not comparable on an apples-to-apples basis but, in terms of price appreciation, BABY stock has the ability to double, or perhaps triple. While JNJ can achieve this, it is just improbable because that would warrant having the largest market cap in the world.
Although the fundamentals are compelling, it is the BABY stock chart that first drew me to this name. The following chart illustrates the positive developments in Natus Stock that piqued my interests.
Chart courtesy of StockCharts.com
BABY stock generated a golden cross in August 2016. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bull market is on the horizon. I find it always wise to trade in the direction of this signal.
The golden cross comes on the heels of a death cross that was generated in February 2016. A death cross is the exact opposite of a golden cross and suggests that a bear market is on the horizon. This signal was effective as BABY made new lows following this signal.
The horizontal support lines (highlighted in green) mark areas of previous resistance. It took numerous attempts to break above this level. As is always a sticking point in technical analysis, when an area of resistance is finally broken, it becomes a new area of support.
This new level of support and the bullish moving average cross should act as a tailwind and provide bullish support for BABY stock. A break below support would be cause for some concern.
The following chart illustrates further positive developments in NATUS stock.
Chart courtesy of StockCharts.com
We have further confirmation of the trend break from the on-balance volume (OBV) indicator. This indicator uses volume to compute buying and selling pressure. It is produced by cumulatively adding volume on up-days and subtracting volume on down-days. The data is then plotted on a chart and helps discern trend. This indicator is used to confirm the current trend.
The price of BABY stock is confirmed by this indicator, as the rally off the April lows is confirmed by OBV. This indicator is making higher highs that match the price action in the share price. Money is flowing into BABY stock and supports the premise of higher prices.
The uptrend line, which is created by connecting the troughs, is key in this short duration chart. As long as BABY stock is trading above this line, the trend is toward higher prices. If Natus Medical stock closes below the trend line, that would signify a change of trend and would be reason to exit the position. This trend line serves to manage risk.
The Bottom Line on JNJ Stock
Johnson & Johnson stock is up 18% on the year and has been a great investment, but BABY stock offers a compelling valuation and a much better looking stock chart. Between the two companies, I prefer BABY stock over JNJ stock. Natus Medical is well positioned within this niche market. My bias is bullish on BABY stock and will continue to be until the charts give me reason to be otherwise.