When you think about blue chip stocks in healthcare, which stocks come to mind? For many, Abbott Laboratories (NYSE:ABT) and Johnson & Johnson (NYSE:JNJ) would be at the top of the list. The two companies are large, established players in the healthcare sector with famous brands and solid financials.
But some blue chip stocks are more worthy of placing your chips on than others. So far this year, Abbott Labs has delivered greater returns for investors. Which of these two big healthcare stocks is the better pick for the future? Here's how Abbott Labs and Johnson & Johnson compare.
The case for Abbott Laboratories
Abbott Labs has been one of the hottest medical-device stocks of 2018. The company's successful stock performance has been driven largely by growth from acquisitions and new products.
In particular, two key acquisitions have boosted Abbott's sales. The company's buyout of St. Jude Medical closed in January 2017. This deal strengthened Abbott's cardiovascular product lineup. Abbott acquired Alere in the fourth quarter of 2017. The transaction bolstered Abbott's diagnostics business, giving the company the leading point-of-care testing portfolio in the world.
Several new products have been vital to Abbott's improving fortunes. The company's sensor-based continuous glucose monitoring (CGM) system, FreeStyle Libre, has been an especially big hit. The system eliminates the need for diabetes patients to stick their fingers routinely to obtain blood for glucose testing. Another important new product for Abbott is its Confirm Rx insertable cardiac monitor (ICM), which is the first smartphone-compatible ICM to help physicians remotely identify cardiac arrhythmias.
But these acquisitions and new products really just point to the best argument for the stock: Abbott's focus on creating value for shareholders. Dealmaking and innovation are the fruits of this continual focus. And it has made Abbott No. 1 or No. 2 in nearly every market where it competes.
For numbers-oriented investors, Abbott Labs has plenty to offer. The company is on track to increase revenue by nearly 12% this year to around $31 billion. It has a cash stockpile, including cash, cash equivalents, and short-term investments, of more than $7.5 billion.
And Abbott has paid a dividend for 379 consecutive quarters. The company has increased its dividend for 46 years in a row, making Abbott Labs a member of the elite group of stocks known as Dividend Aristocrats. Abbott's dividend currently yields 1.54%.
The case for Johnson & Johnson
There are some similarities between the investing theses for Johnson & Johnson and Abbott Labs. For example, acquisitions have been important for J&J just as they have been for Abbott.
Johnson & Johnson's 2017 acquisition of Swiss drugmaker Actelion Pharmaceuticals brought pulmonary hypertension drugs Opsumit, Tracleer, and Uptravi into J&J's lineup. The company also picked up a new business last year from none other than Abbott Labs. The acquisition of Abbott Medical Optics has boosted J&J's eye-care products revenue.
While J&J is the largest healthcare company in the world, it's also a dominant player in multiple markets within the healthcare sector. The company's consumer healthcare products, medical devices, and pharmaceuticals each generate annual sales measured in the tens of billions of dollars.
J&J's pharmaceuticals segment typically provides the highest revenue growth, with cancer drugs Darzalex, Imbruvica, and Zytiga leading the way. The company's consumer business delivered a surprising sales jump in the third quarter thanks to higher U.S. demand for over-the-counter medications and beauty and baby care products.
Few companies are in the same league as J&J financially. The company will likely rake in close to $81 billion in revenue this year and more than $16 billion in profits. Johnson & Johnson sat on $19.4 billion in cash, cash equivalents, and marketable securities at the end of September 2018.
J&J has long been known for paying a solid dividend. The company has increased its dividend for 56 consecutive years. Its dividend currently yields 2.47%.
I think that Abbott Labs is likely to deliver a higher total return over the next few years than Johnson & Johnson will. The problem for J&J is that it faces declining sales for top-selling drug Remicade in the wake of biosimilar competition. Sales are also slipping for other key drugs, including diabetes drug Invokana and anticoagulant Xarelto.
But while my view is that Abbott is the better buy right now, I like both of these stocks. Both Abbott Labs and Johnson & Johnson didn't achieve success decade after decade for 130 years or more by resting on their laurels. These companies should continue to create value for shareholders for a long time to come.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of Johnson & Johnson and has the following options: short January 2019 $140 calls on Johnson & Johnson. The Motley Fool has a disclosure policy.