Johnson & Johnson has a chance to show it's more than just a rotation winner

Here is a story making headlines in the economy: Johnson & Johnson shares have showed signs of life ahead of earnings. For the stock to keep running, the healthcare giant needs to show investors that its most promising drugs are still gaining steam. J & J's climb back to record highs exactly one week ago was largely fueled by a marketwide rotation into lagging healthcare stocks and away from big winners tied to the AI infrastructure buildout.

Since then, though, the stock has lost a few percentage points, in line with the S & P 500's healthcare sector , as the Iran war heated up again and dragged down large swaths of the market outside energy and tech. A weak preliminary earnings report from hospital operator HCA Healthcare weighed on the group in Tuesday's session. Nevertheless, Wednesday morning's second-quarter earnings report is J & J's chance to prove that its businesses — from pharma to medical technology — are performing well enough for investors to stick around and bet on more upside from here.

Economic Details

According to FactSet, the average price target among analysts of around $254 does not signal a lot of daylight, as that's right around where the stock traded Tuesday afternoon. Our price target is a bit higher at $265 — a couple of bucks shy of last Tuesday's highs. We're among like minds with our buy-equivalent 1 rating ; nearly 70% of analysts who cover the stock feel the same.

For now, though, it's too close to earnings for Jim Cramer to recommend any moves. "I'm not going to go out on a limb and say buy J & J until I know more," he said during Tuesday's Morning Morning. As of Monday's close, shares of J & J had climbed over 14% since the start of June, one of the Club's top gainers during that stretch.

One of only two stocks better is fellow Club stock Cardinal Health , which was up roughly 19%, underscoring the market's rotation into the very healthcare names left behind in this spring's blistering rally in chip stocks and other AI hardware makers. Through Monday, the healthcare sector was up 8. 7% since June began, easily outperforming a basket of chip stocks , which had dropped 2.

Analyst Views

Healthcare is a classic defensive sector, so as the AI trade wobbled and investors booked profits in first-half winners, more money flowed in the direction of companies like J & J, Cardinal and our other Club healthcare name Eli Lilly . Cardinal and Lilly also set fresh record closes last week, before retreating modestly, as J & J has, in recent sessions. J & J went nearly four months between record closes.

After finishing at $248. 56 on March 2, the stock would pull back nearly 11% until bottoming on May 8. It took out its old high on June 26 and kept climbing to close roughly $267 apiece last Tuesday.

We've owned J & J since early April . "The majority of the driver has been this market rotation out of tech and into healthcare to move more defensively," said Leerink biopharma analyst David Risinger in an interview about the sector's recovery rally.

Economists are analysing what the news means for the markets.