AbbVie (ABBV -0.30%) and Johnson & Johnson (JNJ -1.15%) partner on one of the hottest cancer drugs on the market, Imbruvica. But the two big drugmakers are rivals on several other fronts.
Both stocks have been popular with investors, especially those seeking solid dividends. AbbVie has outperformed J&J, delivering a total return nearly double that of J&J over the last five years. But which of these two stocks is the better buy now?
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The case for AbbVie
Check out the latest AbbVie earnings call transcript.
Let's start with AbbVie's exceptionally attractive dividend. Its yield currently stands at 4.85%. AbbVie has increased its dividend payout by 168% since being spun off from parent Abbott Labs in 2013.
What enables AbbVie to deliver such a strong dividend? The company claims the world's top-selling drug with Humira. It co-markets blockbuster cancer drug Imbruvica with J&J in the U.S. and has exclusive rights to the drug outside of the U.S. AbbVie is also a leader in the hepatitis C market with Mavyret.
The big pharma company also has a couple of rising stars in its current lineup. Venclexta has already won Food and Drug Administration approvals in treating chronic lymphocytic leukemia (CLL) and acute myeloid leukemia (AML). Orilissa is approved in managing pain associated with endometriosis. AbbVie hopes to secure additional indications for both drugs.
AbbVie's pipeline provides even more reasons to like the stock. Immunology drugs risankizumab and upadacitinib especially stand out. The drugs await FDA approval as treatments for psoriasis and rheumatoid arthritis, respectively. AbbVie thinks that risankizumab and upadacitinib will combine to generate peak annual sales of more than $10 billion.
With its strong current lineup and promising pipeline, AbbVie should deliver double-digit earnings growth over the next several years. But the stock is relatively cheap, with shares trading at less than 10 times expected earnings. This attractive valuation is due primarily to investors' concerns about AbbVie's reliance on Humira, which faces competition from biosimilars in Europe already and will see biosimilar entrants in the U.S. market in 2023.
However, AbbVie isn't worried about the threats to Humira. The company expects its other drugs and pipeline candidates will keep it in growth mode well into the next decade.
The case for Johnson & Johnson
Check out the latest Johnson & Johnson earnings call transcript.
Johnson & Johnson's dividend yield of 2.81% is also quite appealing. Even better, the company has increased its dividend for 56 consecutive years and is likely to keep that streak going.
"Healthcare giant" is probably the best way to describe Johnson & Johnson. The company claims the largest market cap among healthcare stocks. J&J isn't just a huge drugmaker; it also is a major consumer healthcare company and one of the world's largest medical device makers.
This broad scope of operations gives J&J significant competitive advantages. For example, it can bundle products and services from its various businesses to win new customers and keep existing customers.
Johnson & Johnson's primary growth driver is its pharmaceutical unit. Although sales for its top-selling drug Remicade are falling due to biosimilar competition, several of J&J's other products -- especially multiple myeloma drug Darzalex and Imbruvica -- continue to enjoy strong growth.
J&J's consumer segment also appears to be returning to solid growth. CEO Alex Gorsky said in October that the company is seeing "accelerated momentum" for its consumer healthcare business. In particular, J&J has enjoyed strong demand in the U.S. for its over-the-counter medications, beauty products, and baby care products.
While Johnson & Johnson might not deliver spectacularly high growth, the company should be able to continue to provide solid total returns to investors over the long run. J&J has also shown that it's willing to use its strong cash flow to make strategic acquisitions to fuel future growth.
Better buy
In my view, Johnson & Johnson is one of a select group of stocks that you can buy and hold practically forever. J&J was successful 100 years ago and will likely be successful 100 years from now and beyond. It's a solid stock for almost any portfolio.
Having said that, though, I think AbbVie is the better stock to buy right now. AbbVie has a higher dividend yield than J&J. It has stronger growth prospects. And it's valued more attractively. Buying either of these two stocks is a good idea, but if I could only buy one, I'd go with AbbVie.
