Why Traders Are Buying the Dip on Johnson & Johnson Stock

Key Points

• Shares of Johnson & Johnson stock have declined by 11.5% in the quarter, and markets are calling for a bottom and rally here.
• Traders have stepped in through call option buying to try to time a new bull run correctly.
• Institutional buyers and Wall Street analysts agree this might be the bottom for the stock moving forward.

It is no secret that the defensive names in the stock market today, the ones not known for their hot price action or wild return potential, have been the lackluster segment of the financial markets lately. This is because the center of attention has been taken by the technology sector and some of the darling names in that space for all of 2023 and 2024. However, this might change in 2025.

According to Goldman Sachs analysts, the potential for wider tail risks in the broader S&P 500 index is coming up, implying that increased volatility might have a tighter grip on investor and market behavior in the near future. This means there could be a systematic shift back into some of these safer – and discounted – names out there, and investors will now see how a few participants have already taken on this view inside the consumer staples sector.

With a mix of healthcare and non-cyclical products, shares of Johnson & Johnson NYSE: JNJ have now become the subject of trader attention, not just any type of trader. There is a big difference between someone buying a stock outright in a bullish view and someone deciding to buy call options on the name, meaning the direction and the move's timing are inevitable.

Trade Activity Behind Johnson & Johnson Stock’s Dip

Now that the stock has declined to 87% of its 52-week high after a decline of up to 11.5% over the past quarter, some traders call this technical level of $146.6 a share support to be bought repeatedly, as it was back in the third quarter of 2023. With this confidence in mind, here’s the trade that might tip retail investors into following suit.

Just over 13,000 call options were bought for Johnson & Johnson the days following its decline to the above support level, a sign that traders are confident not only in the stock’s recovery but also in the timing of this underlying move higher. Main Street should not ignore This level of conviction, as there must be a reason behind it.

To get an initial idea, investors can look to Johnson & Johnson stock’s low beta of only 0.50. If Goldman Sachs is right in their 2025 macro outlook report about the tail risk in the S&P 500 index, then some capital might start to make its way into a less volatile name like this one.

In fact, some institutional buyers have already gotten ahead of the curve here. Those from Swedbank decided to boost their Johnson & Johnson stock holdings by as much as 2.1% as of January 2025, bringing their net position to a high of $326.9 million today.

Or those from Robeco Institutional Asset Management, who raised the stakes by 17.3% as of the same period, netting their position at up to $235.9 million. These are signs for investors to take when building their bullish theses on Johnson & Johnson stock, but they don’t stop there.

The Market’s Take on Johnson & Johnson Stock

When consulting with Wall Street analysts, the signs become clear as to why these traders – and institutional investors – decided to start buying into Johnson & Johnson stock recently. For starters, investors can look at the earnings per share (EPS) forecasts for the same quarter next year.

These forecasts suggest the company can achieve $2.68 in EPS for the next 12 months, a significant increase of up to 31.3% from today’s $2.04. As stock prices typically are driven by underlying earnings growth, the stage is set for a potential bottom in the stock to start building for a future rally.

This is also why analysts at the Royal Bank of Canada decided to reiterate their outperform rating on Johnson & Johnson stock today, placing a valuation of up to $181 a share for the company. To prove this new view right, the stock would have to rally by as much as 23.5% from where it trades today, not to mention a new 52-week high.

More than that, if the stock takes a little more time to see the price action develop, proving the call option traders wrong, shareholders have another hidden benefit by holding onto Johnson & Johnson stock today. Given the company's low-volatility financials, management is able to maintain a $4.96 per share dividend payout.

On an annualized basis, this represents a dividend yield of up to 3.4% for investors, allowing them to outpace the current inflation rates in the United States economy.