Summary of Johnson&Johnson Inc and Starbucks - Essay Sample

Introduction

Johnson and Johnson's company is a company dealing in medical devices, pharmaceutical, and consumer packaged products. The company started in 1886 by a group of investors from America. The common stock of J&J is part of the Dow Jones industrial average. It is one of the top fifty companies in terms of revenue generation. In 2018, it was ranked number 37 among 500 listed companies in the USA. Johnson and Johnson have a headquarter in New Brunswick, New Jersey. It has more than 250 subsidiaries across the World. J&J sells its products in more than 175 countries across the globe, and it usually records more than 70.1 billion sales revenue.

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On the contrary Starbucks is a retail company dealing in grocery products. It was started in 1971, and currently, it has more than 24000 retail stores within 70 countries. Starbucks is well known for serving the best coffee and offer high quality services to its customers. The company sells a range of products that customer prefers using at home, within the store and any other place. The stocks of these two companies are taken for a follow up because they have price earning per share and earnings yield are close to each other. I want to invest in a stock of one of these companies.

Statement of How You Chose to Invest and Why

Making an investment decision is not easy, but once it has bee made, it is tough to decide which kind of investment portfolio to spend. In most cases, low price earning ratio is always better than high price earning ratio. Therefore it is necessary to diversify the investment in different sectors. With very many numbers of stocks to choose from, it is tough to identify the best equity investment among the many. Reviewing and evaluating financial statement for every company is very cumbersome to determine the business organization with favorable net debt position and ever-increasing net profit margin. At the same time, identifying an investment portfolio based on criterion inputs of a stock screener also has many errors and does not represent the company correctly. The first thing to do when choosing to invest in a given portfolio is to set personal goals. The first course of action when selecting a stock is to determine the purpose of the investment portfolio. Because investors are usually expecting to earn a high income and to preserve capital, the investor must have various investment criteria. Income-oriented investors are more attentive on firms that grow slowly while those who focus on low-risk tolerance and concerned with capital preservation expects to invest in established blue chip companies. The investors who look for capital appreciation target business organizations of various market caps and life cycle stages. The investor should be alert on current market events and opinions. Reading logs, magazines, and other online financial news is a way of identifying a stock to buy from the stock market. This strategy is essential in ensuring that the investor has both present and future market information that the investor can use to predict future performance of the company.

Observed Stock Patterns of Johnson and Johnson and Starbuck

The stock pattern of Johnson and Johnson and for Starbucks fluctuates daily. It climbs slips and then rises again to reach the maximum level. The stock of these companies jumps when there is information in the market that its prices are likely to increase in the future (Hirschey, 2003). This condition attracts many investors to demand their stock. The increase in demand raises the price of stock thus making the stock to have a climbing pattern. The stock pattern of these companies also stagnates sometimes when no information can be used to predict that their stock price. The price of the stock of these companies also falls when the demand for their shares goes down (Drori, 2003). This can be influenced by the action of underwriters of the stock of the company. Underwriters are people who guarantee minimum subscription of stock. When the minimum subscription is not achieved, underwriters purchases all the shares to create a good demand for the stock which has undergone underwriting. The stock of J &J and Starbucks are bought by underwriters which increase the demand of stock in the market making the price of the stock to grow. When there are low demand underwriters, start selling the stock, and this reduces the demand thus making the stock pattern to fall and rise at some points.

What to Do Differently

I decided to evaluate the stock of the company before investing in it. This step is essential in ensuring that I spend in a stock which can generate high investment returns at the end of the financial year. I also decided not to follow the pattern of share prices in the stock market when choosing the most appropriate stock to invest in. I decided to evaluate the stock using the intrinsic value approach which is another important method of assessing shares. I would go through this direction as opposed to others who depend on the information received in the market to predict the price of shares or determine the share value. I would decide to use the intrinsic value approach to evaluate shares because the market price of stock alone cannot indicate whether the stock is undervalued or overvalued (Jansen, 2016). It cannot also predict whether the business organization is profitable or not. Under that condition, I would like to use this approach because it can predict whether the stock price is undervalued or overvalued which is vital in identifying the stock of a profitable company. Before investing in any investment portfolio, it is also necessary to determine the viability of every project to determine if it can generate a return on investment. This will reduce the chance of investing in a company that cannot provide value to the investor.

I came out ahead as compared to the initial value of $5000 which I decided to invest in the stock of either Johnson and Johnson and Starbuck where $2500 should be invested in the stock of a single company. I chose to spend in stock because the information available in the market can be used to predict whether the investment will be profitable or not in the future. It is unnecessary to invest all the money in the stock of J&J alone, but I would like to invest in the stock of both companies to diversify investment. This is essential in minimizing both total and financial risks which every business is likely to face (Lee, 2015).

I have gained various insights from the project. The project taught me that it is essential to diversify investment. This is because diversification is a process which minimizes the risks that the business is likely to face. I also gained an insight that it is not exclusively right to over-rely on the market price of shares or stock when choosing either to invest in shares or bond. It is also vital to conduct stock valuation using an intrinsic value approach to determine if the price of the stock has been undervalued or overvalued. This helps in determining the best company to invest in based on its ability to generate profits.

References

Cassin, B. (2017). Google Inc.: From Search to Global Capital. Google Me. doi:10.5422/fordham/9780823278060.003.0003

Drori, O. (2003). Display of Search Results in Google-based Yahoo! vs. LCC&K Interfaces: A Comparison Study. Proceedings of the 2003 InSITE Conference. doi:10.28945/2623

Hirschey, M. (2003). Valuation effects of patent quality. Tech Stock Valuation, 157-181. doi:10.1016/b978-012349704-8.50021-0

Jansen, B. (2016). Intrinsic Value in Stock Return. SSRN Electronic Journal. doi:10.2139/ssrn.2840035

Lee, S. (2015). Uncertainty, Capital Investment, and Corporate Diversification. SSRN Electronic Journal. doi:10.2139/ssrn.2591750