Mutual Fund Site

As the markets touch highs they have not enjoys in several years, the skeptics and optimists alike are keeping a watchful eye on how some of the most popular companies are reporting their earnings. On Tuesday, January 25, 2011, one such company that is expected to announce earnings is Johnson and Johnson, one of the most widely held top holdings among equity mutual funds.

In fact, a staggering 20% of the investment funds covered at the Mutual Fund Site holds Johnson and Johnson, whether it is for their solid and consistent approach to growth or its aggressive dividend yield of 3.4%. Regardless, Johnson and Johnson is not only a staple at the grocery store, but also among mutual fund companies it appears.

Analysts remain cautious on the security itself, with many rating it “neutral” or “hold.” Tuesday’s earnings call (at the time of writing, we had no indication whether that announcement would happen before or after the bell on Tuesday) should show quarterly earnings per share come in between $1.02 to $1.05 according to data compiled by the Mutual Fund Site.

Alas, what does this mean for the mutual funds that hold Johnson and Johnson stock? Without question, these ten individual funds will be anxious, but more importantly is that Johnson and Johnson shares are held to a large degree by Vanguard Mutual Funds.

No less than four actual Vanguard funds covered at the Mutual Fund Site own Johnson and Johnson, indicating it is not only a fairly conservative play, but one that Vanguard (the leading mutual fund company by assets) has much faith in.

The ten individual equity funds that will be anxiously waiting for positive numbers out of Johnson and Johnson are:

• American Funds AMCAP (AMCPX)
• ING Equity Dividend Fund (IEDAX)
• Invesco Diversified Dividend Fund (LCEIX)
• Fidelity Fund (FFIDX)
• Franklin Growth (FKGRX)
• Franklin Rising Dividend Fund (FRDPX)
• Vanguard Dividend Appreciation Fund (VDAIX)
• Vanguard Wellesley Fund (VWINX)
• Vanguard Wellington Fund (VWELX)
• Vanguard Dividend Growth (VDIGX)

What most analysts and surely the fund managers responsible for the assets above will be watching for is a positive indication about the company’s pharmaceuticals business. In particular, they will want to know what is being doing about upcoming patent expiration dates which are not only looming but which can deeply impact this company’s ability to continue with its profit stream — while Johnson and Johnson has a strong pipeline, investors and analysts will want to see what that pipeline is made up with. Another key area of focus will be the recalls that have surely impacted revenues in the short-term.

Although there is limited (less than 10%) potential upside in the near term, there is much to be bullish about with this company and its stock. In particular, the company has put an aggressive share repurchase program in place and it continues to impress with its relatively low P/E ratio as well as its strong dividend yield. The presence of Johnson and Johnson in the Franklin Growth Fund was one contributor to its choice as the Top Mutual Fund Pick for 2011 at the Mutual Fund Site.

Mutual fund investors who are sensitive about the value of the portfolio will want to investigate whether their equity funds own this low-volatility, high-dividend stock. While expectations are relatively muted, the company’s business line is a touchy one.