The Alpha Algorithm Re-enters the Bluest of Blue Chips

This week’s new Alpha Algorithm recommendation, Johnson & Johnson (JNJ), is one that we previously tried back on April 14. You were stopped out of the stock in late August for a solid 10.7% gain.

With JNJ remaining one of the top three most popular positions in the Alpha Algorithm screening, I am recommending that you re-enter the stock this week. Founded in 1885 and based in New Brunswick, New Jersey, Johnson & Johnson manufactures and sells various products in the health care field worldwide.

It offers consumer products that have become household names like Listerine, Tylenol and Sudafed. It also operates in the pharmaceutical and medical devices areas as well.

JNJ versus the S&P 500 Year to Date

11 Top Investment Strategies Betting on Johnson & Johnson (JNJ)

1. High Quality Stock

The stock exhibits positive fundamentals, including high return on equity, stable year-over-year earnings growth and low financial leverage.

2. Fundamental Strength

It is a top U.S. stock based on fundamentals measured by book value, cash flow, sales and dividends.

3. Dividend Aristocrat

The stock is among those that have increased dividends for at least 25 consecutive years.

4. Hedge Fund Alpha

Based on publicly available disclosures, successful hedge fund managers are investing in the stock.

5. Dividend Dog

It is one of the five highest-yielding stocks among each of the 10 sectors tracked in the S&P 500.

6. Goldman Sachs’ Active Beta

The stock is selected according to four factors — value, quality, momentum and low volatility. These, in turn, are based on criteria including book value, sales and cash flow scaled by share price, profit/assets or return on equity (ROE), risk-adjusted returns and daily standard deviation of returns.

7. Value Tilt

Selected using a multi-factor modeling approach, this is a value stock designed to enhance portfolio risk/return characteristics.

8. Momentum Factor

The stock also is one of the top 120 large- and mid-cap U.S. stocks exhibiting relatively higher price momentum, as measured by a specific factor which has historically driven a significant part of companies’ risk and return.

9. Capital Strength

The stock is part of a strategy that seeks to outperform the market by selecting companies based on the strength of their balance sheets, long-term debt ratios and return on assets (ROA).

10. Low Interest Rate Sensitivity 

It is a large-cap U.S. stock selected for its low volatility and positive price performance in a rising-interest-rate environment.

11. Insider and Analyst Sentiment

One of 100 top stocks out of 5,000 U.S. stocks where corporate insiders (a director or senior officer of a company, or any person or entity that owns more than 10% of the company’s stock) are buying the stock and Wall Street analysts have recently increased earnings estimates.

Recommendation

Buy Johnson & Johnson (JNJ) at market today. Place your initial stop at $114.90.

Options

If you want to play the options, I recommend buying the JNJ December $120 calls (JNJ161216C00120000), which last traded at $2.32 and expire on Dec. 16.

Portfolio Update

Your position in Amazon.com (AMZN) jumped 4.94% in the last week.

With the stock up 15.90% since the Alpha Algorithm recommended it on June 30, raise your stop to $789.00 to lock in at least a 10% gain in the stock.

Also, with the U.S. stock market performing much better in September than expected, it’s best that you sell your speculative Amazon (AMZN) October $755 puts (AMZN161021P00755000) at a loss.

Sincerely,

Nicholas A. Vardy