With only one month remaining in 2017, it's pretty clear which big pharma stock has been the better pick this year between Pfizer (PFE 0.11%) and Johnson & Johnson (JNJ 0.46%). J&J's share price is up more than 20%, while Pfizer stock is only up a little over half as much.

Investing is kind of like driving, though. It's much more important to look ahead than it is to focus on what's in the rearview mirror. Which of these stocks is the better choice for investors in the years to come? Here's how Pfizer and Johnson & Johnson compare in three key categories.

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Several factors drive growth for pharmaceutical companies. Obviously, the prospects for current products already on the market are very important. The companies' pipelines also play a critical role in determining how much growth could be attained. And the ability to make acquisitions and licensing deals is another key determinant.

The easiest of these factors to use in comparing Pfizer and J&J are current products. For Pfizer, there's good and bad news. The company's innovative health segment grew revenue by nearly 11% year, led by blockbuster drugs Eliquis, Ibrance, and Lyrica. However, Pfizer's essential health segment is dragging down overall revenue growth due to falling sales for drugs that have lost exclusivity. 

Johnson & Johnson has its own challenges, with sales for its top-selling drug Remicade declining due to biosimilar competition (including Pfizer's Inflectra). J&J's consumer segment also has sluggish sales growth. Overall, though, J&J's revenue growth is stronger than Pfizer's has been this year, thanks in large part from acquisitions.

Both companies have solid pipelines. Pfizer awaits regulatory approval for 10 drugs (some of which are for new indications for drugs already approved). The company also has 28 late-stage programs. J&J has even more programs in late-stage studies and is waiting on U.S. regulatory approval for eight drugs (including new indications). Earlier this year, research firm EvaluatePharma ranked J&J's pipeline as the fifth-best among big pharma companies, while Pfizer didn't make the top five list.

Acquisitions have been important to both companies. Pfizer bought Anacor and Medivation last year, while J&J acquired Actelion in 2017. Both companies are also likely to spur more growth through additional acquisitions. As of Oct. 1, 2017, Pfizer had cash, cash equivalents, and short-term investments totaling $16.9 billion, while J&J had $16.2 billion.

Which company has the overall advantage when it comes to growth prospects? My view is that Johnson & Johnson wins in this category.


It's a different story with income, though. J&J certainly has the more impressive track record. The healthcare giant has increased its dividend for 55 consecutive years. Pfizer has a nice streak of dividend hikes going now, but the economic crisis of 2008-2009 caused the big drugmaker to cut its dividend.

However, Pfizer's dividend yield of nearly 3.6% is much higher than J&J's yield of close to 2.4%. While J&J has been increasing its dividend at a slightly faster rate than Pfizer has in recent years, I don't see it catching up with Pfizer. In my opinion, Pfizer has the clear advantage in generating steady income for shareholders.


Pfizer stock currently trades at a little over 13 times expected earnings. That's significantly below J&J's forward earnings multiple of nearly 18. For investors who prefer using valuation metrics based on enterprise value, Pfizer also looks less expensive than J&J.

But what about factoring in growth prospects? Although the price-to-earnings-to-growth (PEG) ratio is usually used more for high-growth stocks, we can use it to compare the valuations of these two big pharma companies. Again, Pfizer has the edge, with a PEG ratio of 2.34 versus 2.73 for J&J. I view Pfizer as the better bargain between these two stocks.

Better buy

Pfizer has the advantage over Johnson & Johnson in two out of three categories. It's clearly the less expensive of the two stocks. And Pfizer claims the more attractive dividend, despite J&J's great history of dividend increases.

But do J&J's growth prospects make it the better pick? Not in my view. I look for Pfizer to make a few more acquisitions that will improve its growth potential. In the meantime, the company offers tremendous dividend yields. For me, Pfizer gets the slight nod, but both of these stocks are great picks for investors looking to win over the long run.