If someone were to inform me that esteemed companies like Estee Lauder (EL) or Danaher (DHR) have not only missed their quarterly targets once, but twice, I would have suggested they seek a mental evaluation. These companies are known for consistently surpassing expectations, which is why it is challenging to accurately assess their value at present. Johnson & Johnson (JNJ) is another perplexing case. All three of these stocks have faced challenges during this year’s market recovery. However, I am not ready to give up on them just yet. Allow me to provide an update on each company and explain my reasons for holding onto them.
Danaher has recently focused its efforts on the life sciences sector through a series of divestments. However, this strategy may have backfired due to the scarcity of initial public offerings (IPOs) in the life sciences industry. I can’t recall a time with such a dearth of IPOs since the advent of the biotech era in October 1980. Can Danaher change its course? It is possible, but acquiring another company may be necessary to alter the current trajectory. My sources indicate that Danaher is dissatisfied with their performance, but they appear to be fixated on the wrong issues.
Estee Lauder, on the other hand, continues to surprise me. This company has undergone numerous transformations, from relying heavily on US department stores to expanding into the Chinese market, and then establishing a successful partnership with duty-free chains worldwide. However, the duty-free stores overestimated the influx of Chinese tourists, resulting in excessive inventory. Both Estee Lauder and Danaher now need to prove their resilience. Despite these challenges, I hesitate to give up on Estee Lauder because of its exceptional CEO, Fabrizio Freda, who has a history of navigating complex situations successfully. Perhaps he has a plan up his sleeve once again.
It is worth noting that Johnson & Johnson has faced significant legal issues related to talc products. Former CEO Alex Gorsky vehemently denied the presence of asbestos in these products but is now facing a colossal class-action lawsuit. The company has agreed to pay $8.9 billion in settlements, but some plaintiffs’ lawyers believe this amount is insufficient. Moreover, a separate lawsuit in Northern California involves a terminally ill individual attributing his condition to excessive use of Johnson & Johnson baby powder. If this case gains traction, $8.9 billion may seem like a minor sum.
In summary, Johnson & Johnson, Estee Lauder, and Danaher exemplify the challenges inherent in stock picking and managing a portfolio. Despite being established blue-chip companies with strong financials, they currently face unprecedented difficulties. Can this situation be resolved? Predicting the outcome is a gamble I am not willing to take. Therefore, we will continue to hold onto our positions in these companies. (Please note that Jim Cramer’s Charitable Trust has holdings in EL, DHR, JNJ. For a complete list of stocks, please refer to our terms and conditions and privacy policy. No fiduciary obligation or duty is established by receiving information from the Investing Club. Specific results or profits are not guaranteed.)
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