In any industry, some consolidation is normal over time. It’s also healthy when the largest players in the industry make notable acquisitions.
That’s because acquiring smaller companies can be a good driver for growth down the line, and offer a smaller company the financial strength of a larger one. Over time, industries tend to come down to a few major players, who often pick up promising up-and-coming growth plays.
That looks like the case with healthcare giant Johnson & Johnson (JNJ), which recently entered into an agreement to buy mental health therapy company Intra-Cellular Therapies (ITCI).
Markets like the news, with JNJ shares trending higher on the announcement. The acquisition is valued at about $14.6 billion, and expands JNJ’s drug pipeline.
JNJ shares are still hovering near a 52-week low, and the stock has sold off heavily in recent months. But shares trade at less than 14 times forward earnings, and JNJ has a strong basket of brands.
Action to take: Investors may like shares here, as the company is clearly looking for ways to improve its operations and earnings in the quarters ahead.
At current prices, JNJ pays a 3.9% dividend, which it has a history of growing over time.
For traders, the March $155 calls, last trading for about $1.35, could see high double-digit returns on a bounce higher in shares over the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.