In recent years, Abbott Labs has delivered significantly greater returns for investors than Johnson & Johnson has. But which of these stocks is the best pick for the future? Here's how Abbott and J&J stack up against each other.
The case for Abbott Labs
Abbott Labs has been a healthcare leader for more than 130 years. The company currently ranks No. 1 in multiple healthcare markets, including adult nutrition, blood and plasma screening, glucose monitoring, and point-of-care testing.
Innovation has been the key to Abbott's impressive record of success. Innovative products such as the Alinity line of lab instruments, the HeartMate 3 left ventrical assist device, and the MitraClip device for treating mitral regurgitation have powered the company's growth in recent quarters.
Wall Street analysts project that Abbott will grow its earnings by more than 11% annually, on average, over the next five years, based in part on the continued momentum for these products. In addition, the company anticipates U.S. Food and Drug Administration (FDA) clearance for its new version of the enormously popular Freestyle Libre continuous glucose monitoring (CGM) system, which should be another important growth driver.
While Abbott's diagnostics products and medical devices receive a lot of attention from investors, the company's established pharmaceuticals business also continues to perform very well. This business delivered year-over-year revenue growth of 7.9% in the third quarter, thanks to gains in emerging markets, trailing only Abbott's medical-device segment in growth.
The company's nutrition segment is also growing, albeit at a slower pace than its other units. Lower birth rates, particularly in China, have taken a toll on sales of pediatric nutrition products. However, Abbott should continue to have plenty of opportunities in the global adult nutrition market.
Abbott's dividend currently yields a little over 1.5%. That isn't exceptionally high, but it's important to know that the company has boosted its dividend for 47 consecutive years and is likely to soon add yet another year to that impressive streak.
The case for Johnson & Johnson
Johnson & Johnson was founded in 1886 -- two years before Abbott Labs. J&J ranks as the largest and most diversified healthcare company in the world, with more than 260 operating companies and business segments focused on consumer healthcare, medical devices, and pharmaceuticals.
Like Abbott, J&J is a leader in many of the markets in which it operates. As of 2018, roughly 70% of its total sales stemmed from markets where the company claimed a No. 1 or No. 2 market-share position globally.
J&J's pharmaceutical segment is its biggest moneymaker and growth driver. This segment's continued growth is being driven by products including immunology drugs Stelara and Tremfya and cancer drugs Darzalex and Imbruvica.
Innovation is a core component to J&J's success, just as it is for Abbott Labs. Around 25% of the company's sales are generated by products that have been launched in the last five years. J&J ranks No. 5 among U.S. companies and No. 8 among global companies in value creation through investment in research and development.
The healthcare giant's growth has also stemmed in part from acquisitions. Johnson & Johnson acquired Swiss drugmaker Actelion in 2017, picking up several pulmonary arterial hypertension drugs. Earlier this year, the company bought Auris Health in a deal that bolstered J&J's presence in the robotic surgical systems market.
There's plenty to like about J&J's dividend, as well. Its yield currently stands at 2.75%. The company has increased its dividend for 57 consecutive years and should be in a great position to keep the dividend hikes coming in the future.
I don't think investors would go wrong with either of these healthcare stocks. However, if I had to pick just one, it would be Abbott Labs.
The decision comes down to near-term growth. Although Johnson & Johnson has some great products that should deliver strong sales growth, it also faces some headwinds for other products, notably including immunology drug Remicade. My view is that Abbott will provide stronger growth over the next few years, especially once the new version of Freestyle Libre wins FDA clearance.