Johnson & Johnson (JNJ +0.44%) and Amgen (AMGN 1.20%) are two of the most important healthcare companies on the planet. Both companies are massive, highly profitable, and have minted their long-term investors an absolute fortune.
But which of these two stocks is the better choice for new money today? Let's see how these companies stack up in a few key areas to see if we can determine a winner.
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Growth
Both companies have growth opportunities ahead, but they also face substantial headwinds.
Amgen's biggest obstacle is the declining sales of its multibillion-dollar legacy drugs. Enbrel and Neulasta are posting year-over-year declines in the single-digit range as competition heats up. These two drugs represent more than 40% of Amgen's total sales, so the drop is dragging down the top line.
Offsetting legacy weakness is promising growth for next-generation drugs like cancer drugs Kyprolis, Nplate, and Blincyto, all of which see sales increasing at a double-digit clip. Cholesterol-busting drug Repatha is gaining traction. Biosimilar drugs are starting to come online. Migraine drug Aimovig, osteoporosis drug Prolia, and calcium-reducing drug Sensipar are all growing strong. Amgen's pipeline also offers hope.
Added together, market watchers expect Amgen's top line to decline by 2% next year. That's not great news, but stock buybacks and margin improvements should still allow the company to post bottom-line growth. Analysts are currently calling for earnings per share to grow by about 4% annually over the next five years.
The story is similar over at Johnson & Johnson. The company's biggest problem is that sales of its top-selling drug, Remicade, are falling because of biosimilar competition. That's a manageable problem for now because the company boasts a slew of next-generation drugs that are more than picking up the slack. Drugs like Stelara, Tremfy, Imbruvica, Darzalex, and Zytiga are all posting strong growth, helping total pharmaceutical sales to grow in the high single-digits.
Another factor working in J&J's favor is its two other sizable business segments. The consumer healthcare division owns stable cash-cow brands like Listerine, Band-Aid, and Zyrtec. Its highly-dependable medical device business is growing moderately on an adjusted basis. These two business units comprise about 50% of top-line sales, which is a big plus for investors.
Overall, analysts expect Johnson & Johnson to post revenue growth of about 1% next year. Thankfully, the story looks better on the bottom line. Market watchers currently expect J&J to grow profits in excess of 7% annually over the next five years, a respectable number for a gargantuan business.
Winner: Johnson & Johnson
Value
Wall Street isn't pricing either of these businesses at much of a premium. That's most likely due to the expectation of single-digit earnings growth over the next few years. The potential for future drug price regulations also plays into the modest valuations.
Johnson & Johnson is currently trading for just 15 times next year's earnings estimates. That's a discount to the S&P 500 and is reasonable when considering this company's history of pumping out consistent results.
It is a similar story for Amgen. Shares can currently be purchased for just 14 times next year's earnings estimates. That's even more of a bargain.
Winner: Amgen
Income
Amgen and Johnson & Johnson are both attractive income stocks, paying a dividend to investors.
Johnson & Johnson has been a bedrock income stock for more than half a millennia, boosting its payout for 56 consecutive years. That's an incredible accomplishment. Shares yield an impressive 2.75% at the moment, and the company's payout ratio is only about 44% of full-year profit estimates., suggesting there's room left for future increases.
Amgen is a relative newcomer to the dividend world. The company made its first payment in 2011 but has increased its payout every year since. Shares currently yield 2.84% at current prices, and the dividend only consumes 42% of profits. That's a slightly higher yield and a lower payout ratio than J&J.
Winner: Amgen
The better buy
Amgen is a slightly better income stock than J&J right now, and it can be purchased more cheaply. While that makes it seem like the better buy, I'm actually choosing Johnson & Johnson -- for a few reasons.
First, Johnson & Johnson is a far more diversified business than Amgen. I like that the company's consumer products and medical device divisions offer investors diversification away from just selling drugs. This would likely make it much more resilient to any potential legislation that would put a limit on drug prices.
Second, J&J's top line is still expected to head higher in 2019, showing near-term headwinds are not insurmountable. I also like that its earnings are expected to grow at a more rapid pace.
Finally, I find J&J's track record of consecutive dividend payments to be highly appealing. The company has increased its payout like clockwork through multiple economic cycles. Amgen can't make the same claim.
There's an argument to be made that both of these stocks are attractive right now, especially for investors who value income. However, when forced to choose, I'd go with Johnson & Johnson, hands down.
