CNBC’s Jim Cramer on Monday explained his decision to cut Johnson & Johnson from the Investing Club Charitable Trust.
The company has faced thousands of lawsuits in recent years, many alleging that its talc baby powder and other talc-based products cause cancer. Last Friday, the company’s second attempt to resolve its lawsuits through bankruptcy failed. Cramer admitted he had misjudged the severity of the litigation.
“I simply can’t have a position that’s precarious because of litigation, not because of the fundamentals,” Cramer said. “This business is hard enough without playing lawsuit roulette with jackpot justice.”
Cramer said he originally thought J&J would be able to reach a settlement with plaintiffs, and was optimistic about the company’s performance aside from its lawsuits. But Cramer said he’s realized that he hasn’t taken the plaintiffs’ side seriously enough, adding he can’t now hedge his bets on the outcome of any one lawsuit.
“The charitable trust was betting on litigation, and that’s not a game you want to play. In retrospect, I was far too sanguine about J&J’s ability to get a settlement that would protect their shareholders from unlimited losses through a novel use of the bankruptcy code,” Cramer said. “In the end, I didn’t think the ultimate upside — a series of wins by J&J or perhaps a Supreme Court victory down the road — was worth hoping for. Hope should never be a part of the investing equation.”
Johnson & Johnson did not immediately respond to requests for comment.
