AbbVie (ABBV -1.24%) and Johnson & Johnson (JNJ -0.54%) are both monster healthcare companies that have been stellar holdings for long-term shareholders. Both of these healthcare giants post consistent growth, crank out profits, and have a history of sharing the wealth with their investors.
But which is the better choice for new money today?
You can't talk about AbbVie's growth prospects without focusing on a single drug: Humira. This blockbuster compound accounts for more than 60% of total revenue, and has been the company's primary driver for years.
The big concern facing Humira right now is that biosimilar competition is starting to enter the picture. That pressure is currently just limited to Europe, but it should spill over into the U.S. within just a few years.
AbbVie is aware of the headwinds, and has been aggressively developing new drugs to help fill in the eventual void. Current winners include the hematology drugs Imbruvica and Venclexta, as well as the hepatitis C drug Mavyret. These drugs are still in growth mode, and are expecting to pull in billions in annual revenue in the years ahead. The company's pipeline is also expected to go a long way toward overcoming the decline.
All told, Wall Street currently believes that AbbVie's bottom-line will grow in excess of 9% annually over the next five years. That's a pretty solid growth rate for such a mature business.
While Johnson & Johnson is a far more diversified business than AbbVie, it is having troubles with biosimilars too. Sales of the company's top-selling cancer drug, Remicade, are falling by double digits from the pressure of copycat competition.
J&J's management team has also focused its attention on new drug launches to help pick up the slack. The company's current winners include Stelara, Tremfy, Darzalex, and Zytiga, among others.
Unlike AbbVie, J&J isn't just a drug maker. The company also pulls in billions in annual sales from its consumer healthcare division and its medical device business. When combined, these two units pull in more than half of total sales, and are also helping to cushion the Remicade weakness.
Market watchers currently think that J&J will remain in growth mode over the next half-decade. The current estimate calls for more than 6% growth in profits over the next five years.
It is great to see that both of these businesses are still growing, but AbbVie's higher expected growth rate gives it the gold medal in this category.
AbbVie is currently trading for 22.5 times its trailing earnings, which isn't all that enticing of a price. However, the number looks much better when you value this company based on its future earnings. AbbVie is currently trading for less than nine times next year's earnings estimates.
It's a similar situation with Johnson & Johnson. The stock is currently valued at more than 24 times trailing earnings, but that number drops all the way to below 15 when you use next year's estimated earnings.
There's an argument to be made that both of these stocks are cheap right now, but there's no doubt that AbbVie's stock is more of a bargain at the moment.
AbbVie and Johnson & Johnson are both dividend dynamos.
AbbVie has paid out a solid dividend ever since it was spun-off of its former parent company Abbott Laboratories (ABT 1.11%) back in 2013. AbbVie's yield currently tops 5.1%, which is a monster number. What's more, the dividend only consumes about 55% of trailing earnings, so there's ample room left for future dividend hikes.
Johnson & Johnson also offers a market-topping yield of 2.6% right now, which is also quite attractive. The dividend only consumes about 44% of net income, so this one looks very safe too.
With a dividend yield that is nearly twice as high as its counterpart, AbbVie is the clear winner here.
The better buy
There is a legitimate argument to be made that Johnson & Johnson's stock is the better choice right now since AbbVie's future is so heavily reliant on the success of Humira. That's a fair criticism that shouldn't be taken lightly.
However, for this matchup there's no doubt who the clear winner is. AbbVie is growing faster, pays out a better dividend, and is trading at a cheaper valuation than Johnson & Johnson. That one-two-three punch is simply too tough to beat.