Verizon Communications (VZ 0.60%) and Johnson & Johnson (JNJ 0.12%) are both slow-growth stocks that are often owned for stability and income. I compared these two blue chips back in February, and predicted that J&J would outperform Verizon this year because it faced fewer near-term headwinds.

Yet J&J's stock has declined about 2% since I made that call, while Verizon's stock has risen about 5%. Did I overestimate J&J's ability to outperform Verizon and the market? Or is the diversified healthcare giant still a better long-term investment?

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Verizon still faces significant headwinds

Verizon is often compared favorably to AT&T (T 1.39%) for three reasons. First, it's the country's largest wireless carrier in terms of subscribers. AT&T fell to third place after T-Mobile (TMUS 0.43%) merged with Sprint last year.

Second, Verizon owns a much smaller pay TV business than AT&T. Therefore, it can more easily offset its loss of pay TV subscribers by gaining more wireless subscribers.

Lastly, Verizon didn't follow AT&T's lead and try to build a media empire with massive acquisitions. It tried to build an online media business by buying Yahoo's internet assets and AOL, but those doomed efforts cost much less than AT&T's acquisitions of DirecTV and Time Warner -- which it's now trying to undo with desperate divestments.

But Verizon isn't necessarily a great investment just because it's beating AT&T. It's still shouldering nearly $150 billion in long-term debt -- most of which came from its buyout of Vodafone's stake in Verizon Wireless seven years ago -- and its 5G network still has less geographic coverage than T-Mobile's.

T-Mobile is also targeting Verizon and AT&T with its "un-carrier" strategy, which eliminates contracts, subsidized phones, data coverage fees, early termination charges, and other annoyances. That competitive pressure could force Verizon to ramp up its spending to maintain its lead.

Verizon recently agreed to sell most of its media assets, including Yahoo and AOL, to Apollo Global Management (APO) to focus on improving its core wireless business. That's a step in the right direction, but Verizon is still arguably a weaker overall telco stock than T-Mobile.

J&J's strengths offset its weaknesses

J&J operates three main businesses: pharmaceuticals, consumer healthcare, and medical devices. These segments are all well-diversified, and their collective strengths usually offset their weaknesses.

For example, J&J's pharmaceutical business once relied heavily on a blockbuster rheumatoid arthritis drug called Remicade, but its growth decelerated in recent years as more biosimilars were approved. Other major drugs, including its cancer drugs Zytiga and Velcade, also faced generic competitors.

To counter those blows, J&J bought more biotech companies like Momenta, struck revenue-sharing deals with promising drugmakers, while its Janssen subsidiary developed new drugs -- including its single-dose COVID-19 vaccine. Its consumer and medical devices businesses also generated stable revenue growth as its pharmaceutical business evolved.

As a result, J&J's pharmaceutical unit started growing again, led by its cancer drugs Darzalex, Imbruvica, and Erleada; its autoimmune drugs Stelara and Tremfya; its antipsychotic drug Invega; and its hypertension drugs Opsumit and Uptravi. Together, those eight growing drugs together generated $15.4 billion in revenue -- more than a third of J&J's total pharmaceutical sales -- in 2020. Remicade only generated $3.7 billion in revenue.

J&J's adjusted operational sales of medical devices fell 11% last year as patients postponed non-essential surgeries during the pandemic. But the strength of its consumer healthcare and pharmaceutical business, which grew their adjusted operating revenues 3% and 8%, respectively, offset that decline.

All three of J&J's businesses face plenty of competitors. However, J&J remains a market leader in all three categories and its global brand recognition gives it a wide moat. It's suffered a few legal setbacks regarding safety issues and recalls in recent years, but its portfolio is so well-diversified that it can withstand those challenges and the costs of one-time legal settlements.

The growth rates and valuations

Verizon's operating revenue dipped 3% in 2020 as the pandemic disrupted its sales of new phones. Its pay TV and online media businesses also remained weak. However, its adjusted EPS rose 2% as it exercised tighter cost controls.

Analysts expect Verizon's operating revenue and adjusted EPS to both rise 4% this year as more customers buy 5G devices. The divestment of its ailing media assets should complement that growth.

J&J's operating revenue rose 1% in 2020, but its adjusted EPS fell 8% as COVID-related disruptions and expenses squeezed its margins. But this year, analysts expect its revenue and adjusted earnings to grow 11% and 19%, respectively, as all three of its business grow in tandem again.

Based on those expectations, Verizon only trades at 11 times forward earnings, while J&J has a slightly higher forward P/E ratio of 17. Verizon's dividend yield of 4.3% also tops J&J's 2.4% yield.

The winner: It's still Johnson & Johnson

Verizon's stock is cheaper, but it faces more challenges than J&J. It's also underperformed J&J and the S&P 500 in terms of total returns, which factor in reinvested dividends, over the past two decades.

JNJ Total Return Level Chart

JNJ Total Return Level data by YCharts

Past performance isn't a reliable indicator of future returns, but I believe Verizon's weaknesses will continue to overshadow its strengths. Verizon isn't a bad investment, but it's hard to recommend buying it when there are many better blue chip stocks -- including J&J -- to choose from.