With the economy faltering, now is the time to look at shares of this rock-solid company. By Andrew Tanzer, Contributing Writer January 9, 2008 In contrast to the stock market's rough start to 2008, consider the robust health of Johnson & Johnson (symbol JNJ), the world's largest and most diversified maker of health-care products. J&J stock closed at $67.80 on January 9, up 1.3%. So far in 2008, JNJ has gained 1.6% while Standard & Poor's 500-stock index has shed 4%.What's the news driving this behemoth (estimated 2008 revenues: $63 billion)? There is no news, and that's just the point. J&J is the type of defensive, rock-solid global company that starts to look attractive in a weakening American economy. Sponsored Content Incorporated in 1887, J&J is one of the last triple-A rated corporations in the land. The company has paid dividends every quarter since going public in 1944 and raised those dividends 44 consecutive years. Today's market is one that values and rewards consistency and reliability like this. J&J breaks down into three major divisions: pharmaceuticals, medical devices and consumer products. Consumer brands such as Band-Aid, Tylenol, Neutrogena and Listerine have the most visibility, but the bulk of sales and profits come from drugs and devices such as DePuy orthopedic joint reconstruction and spinal products. Advertisement This year will be a bit rough for the pharma business because two multi-billion dollar drugs -- antipsychotic Risperdal and Topamax, a migraine and epilepsy treatment -- come off patent. But Remicade, a leading arthritis medication, is a blockbuster, and sales of ADHD drug Concerta continue to expand. UBS says J&J, which spends $7 billion a year on research and development, has a particularly promising drug pipeline after 2009. The company just received FDA approval for an obesity treatment. The diversity and breadth of J&J lends stability. Growth in the drug division may lag this year, but consumer products and medical equipment, such as blood-glucose monitoring devices, will pick up the slack. Much of that growth will be driven by foreign sales; J&J does business in 175 countries and books nearly half of its sales abroad. According to Morningstar, the company can squeeze out 10% a year growth in revenues over the next three years, a respectable showing for a company of this size in a weak economic environment. Advertisement But it's the financial strength of J&J that attracts investors in today's weak economy. The company earns a high return on equity of 28% -- that's earnings before dividends divided by net worth. Its cash exceeds its long-term debt. And it generates a huge free cash flow (operating cash flow minus capital spending) of more than $12 billion a year. This free cash flow -- which can be used to repurchase stock, raise dividends (the current yield is 2.5%) or make acquisitions -- is a lofty 20% of sales. The stock's free cash flow yield of 6.4% is relatively high for a company of this quality and consistency. It is financial characteristics such as these (not to mention J&J's strong management and brands) that may be attracting Warren Buffett to the stock. In the quarter ended last September, Buffett's Berkshire Hathaway (BRK-A) purchased 8.5 million shares of JNJ, raising its stake in the health care company to 62 million shares. UBS has a 12-month $77 price target on J&J stock. Adding in the 2.5% dividend, that implies a healthy 16% return on a blue chip. So far, so good.