Large Cap Stocks Are Cheaper Than They Appear

Companies like Johnson & Johnson (NYSE: JNJ), Merck (NYSE: MRK), and Pfizer (NYSE: PFE) may be well followed, but, even so, the market sometimes underestimates their earning power. The patent cliff has created enormous uncertainty surrounding these companies' future revenues, so investors who can reasonably estimate the impact of the patent cliff on their profitability stand to make outsized returns.

However, none of these companies would be classified as a Charlie Munger "cannibal." Merck has substantially increased its shares outstanding over the last decade, while Johnson & Johnson and Pfizer have kept shares outstanding at about the same level. When there is ambiguity as to how cheaply a stock is priced, as is the case here, I would prefer to count on reductions in shares outstanding. As a result, I will wait for these stocks to get a little cheaper before diving in.

Source: Motley Fool

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