Mead Johnson Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Mead Johnson Nutrition (NYS: MJN) plunged 10% on Thursday after Wal-Mart (NYS: WMT) pulled a batch of its Enfamil baby formula from stores following the death of a Missouri infant who was fed the powdered formula.

So what: While a direct link between the death and Enfamil has yet to be found, investors are now fretting over possible worst-case scenarios including further pulls from Wal-Mart or even a full recall ordered by the government. Naturally, Mead Johnson sought to calm the market's nerves by assuring that the batch in question was, in fact, tested vigorously and found to be free of any bacteria when it was produced and packaged.

Now what: I wouldn't be so quick to pounce on this plunge. Whether justified or not, there's a real possibility that Enfamil sales will suffer from negative public perception even well after the issue is resolved. When you couple that nasty new headwind with the stock's already lofty P/E of 28, Mead Johnson seems like an easy pass.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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