Despite the stories of newly minted crypto millionaires, building wealth through investing typically takes time. One way to find companies that will create wealth in the future is by looking at those that have generated it in the past. That means asking which companies adapted to all kinds of economic conditions and industry changes over decades.
Pfizer (PFE -3.85%) and Johnson & Johnson (JNJ -1.15%) are two companies that bolster their strong resumes with clear strategies for the future. Investors looking for the recipe to becoming a millionaire might find all the ingredients they need in two of the most well-known companies in the healthcare industry.
Image source: Getty Images.
1. Pfizer
The 153 year old pharmaceutical giant has undergone a transformation in recent years. It needed to. After returning nearly 4,000% between 1980 and 2000, the stock climbed a mere 20% over the next 20 years.
First, it created a joint venture of its consumer health business with GlaxoSmithKline's in 2019. Next, it spun off Upjohn -- its off-patent and generics business -- with the assets of Mylan. That formed Viatris (VTRS -0.69%). CEO Albert Bourla hoped the remains would be an organization with a singular focus on scientific discovery.
It didn't take long to see signs of the vision coming true. The company expanded its partnership with BioNTech and helped create Comirnaty, the first vaccine using messenger RNA (mRNA) to ever be authorized. By this past March, Pfizer and BioNTech had shipped 430 million doses to 91 countries. Many see the need for the vaccine lasting beyond the pandemic, much like a flu vaccine. Pfizer is prepared, with plans to produce up to three billion doses in 2022.
Bourla expects more breakthroughs like Comirnaty in the future. The company already has many blockbusters. It's best sellers, Prevnar and Eliquis -- drugs to prevent blood clots and pneumonia, respectively -- along with breast cancer treatment Ibrance, generated more than $16 billion in revenue last year. However, Bourla is focused on the future.
The company's pipeline contains 99 new therapies or potential new applications for an existing drug. Management has also said to expect acquisitions of drug candidates in phase 2 or phase 3 clinical trials. Both the pipeline and deals are designed to be revenue-producing in the back half of the decade. That would provide long-term visibility to a business expected to generate $72 billion in revenue this year. The company has also signaled its intent to become a leader in using mRNA technology to develop treatments. It even upped its projected spending on research and development to account for the move.
Pfizer might be a worthwhile investment based solely on the legacy business. The $46 million in expected non-COVID revenue this year and 4% dividend yield would attract a lot of buyers. Combining that with the mega-blockbuster COVID vaccine and a robust pipeline make it even more attractive. The top line grew 8% in the most recent quarter not counting Comirnaty. If management's moves can sustain that level of growth, an investment in Pfizer should beat the market over time.
2. Johnson & Johnson
Johnson & Johnson is one of the best-known brands in healthcare. It's also been a fixture on Fortune's most-admired companies list for 19 straight years. The last eight were as the most admired pharmaceutical company. That ranking may be built on a storied past rather than recent performance. For one, the stock has consistently underperformed the broader S&P 500 index over the last decade. Like Pfizer, the period from 40 to 20 years ago was stellar.
| Period | S&P 500 Total Return | J&J Total Return |
|---|---|---|
| 1 year | 41% | 20% |
| 3 years | 63% | 51% |
| 5 years | 120% | 71% |
| 10 years | 287% | 237% |
| 20 years | 389% | 488% |
| 30 years | 1,920% | 2,770% |
| 40 years | 2,260% | 5,270% |
Data Source Y-charts.
One drag has been the prevalence of litigation. Since 2013, the company has either settled, lost judgement, or is in the midst of litigation for flawed hip implants, asbestos in its talc baby powder, illegally marketing its antipsychotic drug, and its creation of a "super poppy" that may have contributed to the U.S. opioid crisis.
Despite the legal issues, the business itself has been the model of consistency. Since 2015, revenue has grown between 2.3% and 3.3% every year, while the gross margin has held steady between 66% and 70%. The stability can be attributed to diversification. Its consumer health, pharmaceuticals, and medical devices segments account for 17%, 55%, and 28% of last year's $82.7 billion in revenue, respectively. It's also diversified geographically, with more than half of sales coming from outside the United States.
| Geography | Percent of 2020 Revenue* |
|---|---|
| United States | 52% |
| Western hemisphere (ex-U.S.) | 6% |
| Europe | 23% |
| Asia-Pacific | 18% |
Data Source: Johnson & Johnson. * Does not add to 100% because of rounding.
The tide of underperformance may be turning. Revenue grew 5.5% in the recently reported first quarter thanks to 12.2% growth outside the United States. The company upped its guidance for the full year, anticipating between 8.7% and 9.9% revenue growth. Beyond the recovery in 2021, Johnson & Johnson is investing to remain a leader in each of its segments.
Like Pfizer, it has a robust drug pipeline. Johnson & Johnson believes it could have 10 new filings in 2021, with 13 in 2022 and 26 in 2023. Its cancer drugs are a particular bright spot. The company's oncology drugs produced $2 billion in sales a decade ago. In the most recent quarter alone, they delivered $3.6 billion and grew 15% year over year.
It is also innovating in hardware. Among the medical devices it plans to launch this year is the Velys robotic system for knee replacements. It is a first of its kind table-mounted device that blends data and digitization to provide insight before, during, and after the surgery.
Johnson & Johnson is the epitome of stability and diversification in the healthcare industry. Despite a strong reputation, the stock has underperformed for a generation and shareholders have had to stomach embarrassing litigation. However, with 59 consecutive years of dividend raises -- the stock now yields 2.5% -- and innovative products to drive future growth, the stock is one of the safest ways to build wealth an investor can find. The company's shares belong in the portfolio of anyone that fears a loss of capital but still wants the growth associated with owning stocks.
