Lyon drops Johnson & Johnson from Troy Trojan

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Sebastian Lyon has sold out of pharmaceutical firm Johnson & Johnson in his £2.6bn Troy Trojan fund on the back of disappointing earnings expectations.

FE Analytics shows the fund had 1.28 per cent of its portfolio in the company in June but the manager disposed of this holding in July.

”Pharmaceutical and medical device companies have been some of the best performing stocks year-to-date. Indeed, Johnson & Johnson’s share price has increased by one-third,” Lyon says.

“However, earnings expectations for this year and 2014 have not improved, meaning that the shares have re-rated from 14 times 2013 expected earnings to 17 times.”

The manager adds that Johnson & Johnson has made several “expensive” acquisitions, including a recent deal to buy pharmaceutical discovery and development company Aragon Pharmaceutical for $1bn (£650m) and picking up orthopaedics business Synthes for $19.7bn last year.

In addition, he says the firm has invested heavily in research “in the hope of reinvigorating only tepid revenue growth” but casts doubt on whether this strategy will be effective.

“The returns from all this investment are uncertain and we believe that the current share price is discounting only good news, hence our decision to sell,” Lyon says.

Troy Trojan’s cumulative performance to 9 August 2013

 
Troy Trojan -3.79% -3.12% -1.70% 21.01% 56.24%
0.29% 5.70% 15.06% 26.34% 32.51%
-4.07% -8.34% -14.57% -4.22% 17.92%
  123 / 134 128 / 133 125 / 129 86 / 108 6 / 94
4 4 4 4 1

Source: FE Analytics