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Why Is Johnson & Johnson (JNJ) Stock Down Today?

It’s a sea of red in the stock market today, but some companies are clearly under-performing others. One such notable decliner today is Johnson & Johnson (NYSE:JNJ), with shares of JNJ stock dropping 4% in early afternoon tradin…

It’s a sea of red in the stock market today, but some companies are clearly under-performing others. One such notable decliner today is Johnson & Johnson (NYSE:JNJ), with shares of JNJ stock dropping 4% in early afternoon trading.

This decline is notable because JNJ stock doesn’t tend to see such large single-day moves. The company’s decline today appears to be tied to reports that a U.S. court has rejected Johnson & Johnson’s strategic move to use the bankruptcy courts to resolve tends of thousands of lawsuits tied to cancer claims over the company’s talc powder products.

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The company noted it would appeal this ruling. However, with 38,000 lawsuits tied to this product, it’s clear the judges may want consumers to see their day in court. The company’s previous strategy, which involved spinning out its talc products into a separate company and filing for bankruptcy, appears to be viewed by the courts as a way of skirting liability.

Let’s dive into what investors may want to make of this move.

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JNJ Stock Sinks on Legal Exposure

Investors in any healthcare conglomerate have to factor in certain downside risk factors when investing in any company. Accordingly, today’s ruling shouldn’t necessarily surprise many investors. This move appears to have been made as a way to access the bankruptcy system by a company that’s on solid financial footing.

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The ramifications of these lawsuits could be significant for investors, though it’s unclear what Johnson & Johnson’s ultimate exposure is. Today’s 4% decline in the company’s stock price appears to be reflecting this uncertainty, with many appearing to have believed these lawsuits would go away.

I’m of the view this ordeal will take time to resolve, and some monies will certainly be paid out. The extent to which the sum is material enough to significantly impact the company’s earnings over the very long-term doesn’t appear to me to warrant such a substantial selloff today. That said, given the overall bearish mood of the markets, this is another reason for investors to hit the ask today.

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Thus, for long-term investors, perhaps this is the sort of day to be buying when everyone else is selling.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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