Excerpted from the July 2006 issue of
Porter Stansberry's Investment Advisory

...Something very unusual is going on right now in the stock market.

Right now the very highest quality stocks are the cheapest. This strange situation has set up what I believe is probably a once-in-a-decade opportunity for you to invest in the world's best companies at "no risk" prices. I can only hope that you will grasp the importance and the rarity of this situation. Lightning strikes every day... but it doesn't hit right next to you very often.

Why have blue chip stocks gotten so cheap...?

Most investors today are worried about inflation. The price of oil. North Korea. Iran. Iraq. Interest rates. You name it, they're worried. Sentiment studies show that investors are more worried about stocks right now than they've been since immediately after the Iraq invasion in March 2003.

AMG Data Services, which studies investment flows into and out of mutual funds and hedge funds, reveals that last month, for the first time in a long, long time, people were taking money out of both stock and bond funds. For example, the week ending June 28 saw investors withdraw $1.2 billion from equity mutual funds and another $685 million from taxable bond funds. The week ending June 21 saw equity fund outflows of more than $5 billion.

When money flows out of stock mutual funds, big capitalization stocks take the brunt of the selling, because mutual funds hold nearly all of their assets in the 500 biggest American companies. The recent dip in investor sentiment and the remnants of 2000's equity bubble collapse have created an opportunity to buy the highest quality blue chip stocks in the world... at incredibly cheap prices.

I want to be crystal clear about this... in five years' time, 10 years' time... you will look back on these days and shake your head in disbelief that you could buy stocks like Intel, Microsoft, Johnson & Johnson, Nokia, Anheuser-Busch, Raytheon, and Verizon (just to name a few) at the low multiples of earnings and cash flow that you find them at today.

The stock market is essentially rating these stocks as junk – but they're actually the best of the best. A portfolio of these stocks, bought at the prices we've been paying in our model portfolio, will produce outstanding long-term gains – for years and years and years.

That doesn't happen very often. And, as bad a bet as big cap stocks have been for eight years, they're not a bad bet anymore. They're a sure thing right now... which is why, of course, most investors want nothing to do with them. Most people have an unfailing desire to purchase investments today that should have been bought five years ago. Contrarily, most people have no interest in what's safe and cheap right now. Go figure.

If you don't load up now, you're missing an opportunity you're unlikely to ever see again. It's ironic... There are so many top-quality investments available right now at bargain-basement prices that you'd probably do better than almost any hedge fund just by buying that list of blue chips I mentioned above.

And yet... when confronted with a can't-miss opportunity to earn 15%-20% a year in the world's safest stocks... most investors (and especially the wealthiest) have turned to bonds, bond hybrids, asset management firms, private equity, and, worst of all, hedge funds. Let the rich get soaked. Trust me: you'll have great returns for years and years to come if you begin to purchase blue chip stocks now – especially if you continue to add to your positions over the next several years (assuming they stay cheap for a while, which they probably will).

ONE STOCK TO BUY NOW... AND TO KEEP BUYING FOR YEARS

Sometimes it's best to start with facts.

Try these: 115,000 employees. 230 separate operating companies. Operations in almost every country in the entire world. In business since 1887. Owners of the broadest range of branded health-care products in the world. Owners of 15 separate "blockbuster" drugs and medical devices. (Blockbuster refers to achieving more than $1 billion a year in sales.) Has increased its dividend for 43 years in a row...

I'm describing Johnson & Johnson (NYSE: JNJ, $60.52), the biggest health-care company in the world.

The company is utterly a giant, the second largest pharmaceutical company in the United States... and at the same time... the largest consumer health products company and one of the largest medical device companies (stents). Johnson & Johnson has sales of more than $50 billion a year. Operating income comes in around $14 billion. And annual cash flows are just above $12 billion.

The company's brands dominate every pharmacy in the world: Tylenol, Motrin, Pepcid, Band-Aid, Neutrogena, and Johnson's Baby Powder. Last month, Johnson & Johnson bought Pfizer's entire consumer products company for $16 billion. Wall Street, as it usually does, hammered J&J's share price when the acquisition was announced – but I think J&J got a great deal. They paid about 16 times earnings for a group of brands that will last more than 50 years and that complement its existing line-up: Listerine, Nicorette, Sudafed, Rolaids, Benadryl, Rogaine, Neosporin, and Visine.

These branded consumer products have patent-protected like margins... but only generic drug-development costs. It's a fantastic business. Buying Pfizer's consumer products group helps even out the size and revenue contributions of J&J's three main groups. The company will now have about 40% of its sales from pharmaceuticals, 35% from medical devices, and 25% in consumer products.

What I like most about J&J is it's primarily a marketing and distribution company – not primarily an R&D shop. Yes, it spends $6 billion a year on R&D, about as much as Pfizer. But it isn't dependent on its own R&D for business success. Instead, J&J is expert at acquiring good new businesses and then plugging these products into its marketing and distribution machine, making them even more valuable. For example, in 1981 it acquired Frontier Contact Lenses. It rebranded the product, and Vistakon now is the world's leading (sales) contact lens. Likewise, rather than try to build its own heart stent from scratch, it bought Cordis in 1996. Cordis now sells $4 billion a year in heart stents.

Branding, marketing, and distributing medicines, medical devices, and health-care products is one of the best businesses in the world – and J&J is the best at it. That's why its operating margins are consistently above 25%. And its return on equity is close to 30%.

The investment case for J&J is easy to make. You're buying one of the world's best companies for peanuts. It's trading, on an enterprise value basis, for 10 times cash flow, which equals a cash earnings yield of about 10%... and it continues to grow. I mentioned that it has increased its dividend every year for 43 years. I didn't mention that lately the increases have been substantial.

Going back to 1990, J&J has raised its dividend at an average rate of about 13.6% per year. And yet, it's still paying out less than 40% of its net profits in dividends.  There's plenty of room for further increases.

The company generates so much cash that it's able to pay a good dividend (2.5% currently), to buy Pfizer's $16 billion consumer products company (in cash), and to continue to buy back a significant amount of stock. During the last four quarters, J&J has bought back just under $900 million worth of shares. And the buyback will almost certainly increase: On March 6 of this year, J&J's board approved a $5 billion repurchase program.

Measuring the investment strictly against our "no risk" criteria shows again what an outstanding opportunity J&J is right now for investors. The company's enterprise value (the price of all its shares outstanding minus net cash) is around $160 billion.

To qualify as a "no risk" investment, a company must produce enough cash to afford the interest payments on a bond big enough to buy back all of its stock outstanding. Or, in other words, does Johnson & Johnson earn enough money to afford to buy itself? If so, it's nearly impossible to lose money as an investor, because, if worst came to worst, the company would simply buy itself, taking you out of the stock at a premium.

Following the announcement of the Pfizer acquisition, the ratings agencies affirmed Johnson & Johnson's triple A credit rating – the best of the best. As Fitch wrote of the deal "JNJ expects to gradually generate $500 million to $600 million in cost synergies, fully realized by 2009. On balance, JNJ's past acquisitions have generated above-market growth, and Fitch expects JNJ to perform similarly with the PFE consumer health care acquisition."

With its triple A rating, J&J could borrow $160 billion at about 7% interest right now. Doing the math, the interest on these bonds would come to $11.2 billion. With annual cash flows above $12 billion, J&J passes our "no risk" test.

So... you have the opportunity to buy one of the world's premiere growth stocks, at a "no risk" price – the cheapest the stock has traded in terms of multiples of earnings since 1994.

Buy Johnson & Johnson below $70. Use a 25% stop loss (not a trailing stop loss).

Editor's Note: Porter Stansberry is the editor of Porter Stansberry's Investment Advisory... his readers are up a super safe 25% in two years on Johnson & Johnson.

In the past year, Porter has correctly forecasted the demise of General Motors, Fannie Mae, Freddie Mac, and the U.S. dollar. His work on the U.S. housing market was the feature of a recent article in Barron's, one of the most highly regarded financial publications in the world. Click here to learn more about Porter Stansberry's Investment Advisory, and what he's predicting will happen next...