Dow Debate: Can Johnson & Johnson Beat UnitedHealth Group in 2014?

Will the strong performance of UnitedHealth versus Johnson & Johnson in 2013 be reversed in 2014?

Feb 17, 2014 at 4:24PM

^SPX Chart

^SPX data by YCharts.

UnitedHealth (NYSE:UNH)stock gain of 40.3% in 2013 easily beat Johnson & Johnson's (NYSE:JNJ) 33.2% for the year. Both handily outclassed even strong gains by the S&P 500 and the Dow Jones Industrial Average.

However, 2014 has not been a smooth continuation from last year. While Johnson & Johnson is up 1.3%, UnitedHealth shares are down 2.3%, the S&P 500 is down 0.5%, and the Dow has fallen 2.5% in the first six weeks of the year. Can Johnson & Johnson maintain this momentum to beat UnitedHealth in 2014?

Strong results
Focusing on the fourth-quarter results released by both companies since the start of the year, it's tough to see why health care juggernaut Johnson & Johnson's share price rise is ahead of insurer UnitedHealth.  UnitedHealth posted strong earnings results that showed top-line growth of 11% and earnings per share growth of 18% when compared to the same quarter of 2012. Johnson & Johnson's results were encouraging but notably weaker -- revenue was up by 4.5% and EPS increased by 4.2%. Of course, the dip in UnitedHealth so far this year could be a result of profit-taking following last year's strong results.

Forecasts
However, the growth rate seen in UnitedHealth's fourth quarter is not expected to last, with sales and earnings growth forecast to be in the single-digits, as opposed to double-digits, in 2014 and 2015. UnitedHealth is forecast to deliver 8% annualized total sales growth over the next two years, with EPS set to increase by 5% per annum during the same time period. Part of the reason for this slight fall in growth rate could be the exceptional margin expansion in the second half of 2013, which is unlikely to continue at the same pace in the future. The growth rate forecasts are, nevertheless, generally in line with those of the wider market.

Meanwhile, Johnson & Johnson is forecast to grow at a similar rate over the next two years as it did in 2013. Revenue is expected to increase at an annualized growth rate of 4.3%, while EPS growth is projected at 6.5%. While revenue and earnings growth look steady, 40% of Johnson & Johnson's business remains in pharmaceuticals, so shares could remain volatile as updates to the drug pipeline are announced. Generic competition and divestment of divisions (part of the company's restructuring) may also lead to more volatile numbers than are presently in the market.

Dividends
Johnson & Johnson is the clear winner on dividends, with the stock yielding 2.5% and offering a whopping 24% growth in dividends per share over the next two years. UnitedHealth, meanwhile, yields just 1.4% (less than the S&P yield of 1.96%) and is forecast to grow dividends per share by 12.8% over the next two years.

Although not a perfect fit in terms of comparison (since UnitedHealth is extremely diversified), pharmaceutical stocks such as Pfizer (NYSE:PFE) and Bristol-Myers Squibb (NYSE:BMY) offer yields that are roughly in line with that provided by Johnson & Johnson. Pfizer yields 2.7% and Bristol-Myers Squibb yields 2.6%, with dividends per share forecast to grow by 24% and 5.2%, respectively, over the next two years. These figures suggest that UnitedHealth may be a touch expensive, since its yield is significantly below both the market and a small basket of other health care stocks (Bristol-Myers Squibb and Pfizer), although admittedly none are a perfect comparator.

The potential winner
It seems as though Johnson & Johnson has a relatively strong chance to continue its outperformance of UnitedHealth through 2014. Of course, that's not to say that UnitedHealth isn't a great company with strong prospects -- it certainly is. However, with comparable growth rates, a higher yield, the potential for positive developments in its pipeline, and almost twice the rate of dividend per share growth over the next two years, Johnson & Johnson has a good chance of beating UnitedHealth this year.

9 Rock-Solid Dividend Stocks

One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool owns shares of Johnson & Johnson. 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 Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers