This week saw a tale of two stocks. Not just any stocks. Microsoft and Johnson & Johnson are the only two AAA-rated companies left in America.
That means ratings agencies such as Standard and Poor’s believe the bonds issued by these two blue chips are the closest thing to a sure bet a buyer can get. Call them the gold standard. Their finances are considered impeccable. And both companies made news this week.
Seattle-based Microsoft earned a brief shout-out in Barron’s with a report that Capital Group, the $1.6 trillion asset management firm that offers the American Funds, bought more Microsoft for the investors in its widely held funds.
If you have a pulse and own an index fund, you own MSFT. Vanguard Group owns the most shares with a 6.1 percent stake.
BlackRock has 5.6 percent. Co-founder Bill Gates still has 2.5 percent, worth around $14 billion — even though Gates has been selling off his shares for years to buy other companies and therefore spread his risk.
Microsoft saw its shares sleep through the first dozen years or so of this century. But it has taken off since chief executive Satya Nadella took over in 2014. He has concentrated Microsoft’s efforts on the surging cloud computing business.
The stock has been on a tear under Nadella, up around 160 percent. It was floating around $72.67 in mid-day trading Wednesday.
I bought Microsoft, reluctantly, two decades ago on my wife’s suggestion. I told her the stock was burned out after several splits and not worth buying. I said, “Bury it.” My wife said, “Buy it.”
Well, it split a couple more times. Paid a special dividend in 2004. Began paying regular dividends. Bought back stock. Coasted for a few years as then-CEO Steve Ballmer grappled with the Internet, a re-surging Apple and with the rise of Google (now Alphabet).
Microsoft has evolved into a major player in commercial cloud computing (52 percent of gross revenue), closing in on Amazon. (Jeffrey P. Bezos, the founder and chief executive of Amazon.com, owns The Washington Post.) It still has its Windows office franchise (its long-time money-printing machine), the Xbox video game and LinkedIn. It has $133 billion in cash, too.
“They are in almost every area where the computer is going,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. Tigress has a “buy” rating on Microsoft. “Satya has really taken the company to the next level. Strong balance sheet, brand equity, dividend yield, cash flow, buying back stock.”
We held on and are happy we did.
Health-care giant Johnson & Johnson got off to a less happy week when a Los Angeles jury on Monday ordered the company to pay $417 million to a woman who said the talc in its Baby Powder — which the women used daily for decades — caused her ovarian cancer.
Johnson & Johnson makes everything from Baby Oil to Band-Aids to medical devices and anti-cancer drugs.
The New Jersey-based health care giant with $72 billion in revenue and its rock-solid balance sheet is a staple of many mutual funds and portfolios. Vanguard owns 7 percent, BlackRock 6 percent and State Street 5.7. (I don’t own any directly, though it is certainly in some of my mutual funds.)
Johnson & Johnson shares have been on a roll for five years, doubling in price from about $67 in August 2012 to $133 and change today. The shares are up 16 percent so far this year.
Thousands of women have filed similar suits over the Baby Powder. Johnson & Johnson has won some of the claims in talc lawsuits and has lost others. It is preparing to defend itself against more claims.
“Ovarian cancer is a devastating diagnosis, and we deeply sympathize with the women and families impacted by this disease,” said Johnson & Johnson’s Carol Goodrich in a statement. “We are guided by the science, which supports the safety of Johnson’s Baby Powder.” The statement cited a National Cancer Institute study in its defense.
Goodrich said the company would appeal the verdict.
“You can’t have one of your best known products causing cancer,” Feinseth said. Still, he said, the amount awarded is small compared with Johnson & Johnson’s $16.5 billion in profit last year.
“I don’t think the verdict will hurt their credit rating,” Feinseth said. “And I think it’s unlikely they will pay out the full $400 million judgment.”
The stock was down more than $1.60 a share Wednesday afternoon.