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Johnson & Johnson
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== Risks == As with any investment, investing in Johnson & Johnson carries a level of risk. Overall, based on the Johnson & Johnson's adjusted beta (i.e. 0.71)<ref name=":4">Research shows that an investment has two main types of risks: 1) non-systematic and 2) systematic. Systematic risk is the risk related to the overall market, and non-systematic risk is the risk that's specific to an individual investment. Evidence shows that taking on non-systematic risk is inefficient, and it's, therefore, best to eliminate it; and in most cases, elimination is fairy easy to do [by holding a diversified portfolio of investments (i.e. around 15 investments)]. Accordingly, when assessing the riskiness of an investment, it’s best to look at the systematic risk only (i.e. ignore the non-systematic risk). A key measure of systematic risk is beta, and a main way to determine the riskiness of an investment is to compare the beta of the investment with the beta of the market, which is 1. For estimating an asset's beta, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.</ref>, the degree of risk associated with an investment in Johnson & Johnson is 'medium'. Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. ==== Risks that Johnson & Johnson is exposed to: ==== Risks Related to Our Business, Industry and Operations: * The Company’s businesses operate in highly competitive product markets and competitive pressures could adversely affect the Company’s earnings. * Interruptions and delays in manufacturing operations could adversely affect the Company’s business, sales and reputation * The Company relies on third parties to manufacture certain of our products. Any failure by or loss of a third party manufacturer could result in delays and increased costs, which may adversely affect our business. * Counterfeit versions of our products could harm our patients and have a negative impact on our revenues, earnings, reputation and business. * Global health crises, pandemics, epidemics, or other outbreaks could adversely disrupt or impact certain aspects of the Company’s business, results of operations and financial condition Risks Related to Government Regulation and Legal Proceedings: * Global sales in the Company’s Pharmaceutical and MedTech segments may be negatively impacted by healthcare reforms and increasing pricing pressures * The Company is subject to significant legal proceedings that can result in significant expenses, fines and reputational damage. * The Company faces significant regulatory scrutiny, which imposes significant compliance costs and exposes the Company to government investigations, legal actions and penalties * Changes in tax laws or exposures to additional tax liabilities could negatively impact the Company’s operating results. Risks Related to Our Intellectual Property * The Company faces increased challenges to intellectual property rights central to its business. Risks Related to Product Development, Regulatory Approval and Commercialization * Significant challenges or delays in the Company’s innovation and development of new products, technologies and indications could have an adverse impact on the Company’s long-term success Risks Related to Financial and Economic Market Conditions: * The Company faces a variety of financial, economic, legal, social and political risks associated with conducting business internationally. * Failure to maintain a satisfactory credit rating could adversely affect our liquidity, capital position, borrowing costs and access to capital markets * The Russia-Ukraine War, and actions taken in response to the Russia-Ukraine War, could adversely affect our business, results of operations or financial condition.
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