In the early days of the coronavirus vaccine race, it seemed as if Johnson & Johnson (JNJ -1.82%) was neck-and-neck with other major contenders. A range of factors including manufacturing delays and quality control issues caused the company to fall behind in the race, and despite the proven efficacy of its vaccine and the convenience of the one-dose regimen, the company has generated far less hype among investors in the pandemic era.

In this segment of Backstage Pass, recorded on Sept. 20, 2021, Fool contributors Rachel Warren, Toby Bordelon, and Brian Withers discuss why investors shouldn't dismiss Johnson & Johnson's ability to generate long-term growth from its coronavirus vaccine, and what makes the stock an all-around excellent choice for a rock-solid investment portfolio. 


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Rachel Warren: I think one area where there's been a lot of attention on Johnson & Johnson has been its COVID vaccine. I think in the early days, there was a lot of hype around that along with, of course Pfizer and Moderna, and wondering how that was going to maybe affect Johnson & Johnson's shares and its balance sheet. Then it had these issues with, briefly in the spring, there were some concerns with the blood clots from the vaccine, and then there was some issues with its manufacturing partner that slowed production down, all of which has been put in the past.

But management's still forecasting about $2.5 billion in revenue from that vaccine this year, even though they are currently distributing it on a not-for-profit basis during the pandemic. So I wouldn't say that it's a reason to buy the company. I think its dividend, its steady growth history, strong demand for its products are really what make its business great. But I wouldn't count it out for that just yet. So that's kind of my take on it. 

Toby Bordelon: I definitely agree with you on that, Rachel, with the not count it out, right, because it's, you know I'm not sure how much a company like J&J needs a boost to their brand-name [laughs], I think people probably know them around the world. But when you think about it, giving this thing away on a not-for-profit basis, especially as you see more distribution, I think, from Johnson & Johnson around the world, and some of the lower-income countries, because of it's easier to transport, it's easier to store it, and it's only a once shot regimen, I think that's just going to be an even bigger boost for them in terms of brand recognition.

What it's done for me, right, so I've always thought of it as more of a household supplies company, with the over-the-counter drugs and the over-the-counter medical supplies and that sort of thing. But they are definitely playing this prescription-drug space and the vaccination space. This has kind of made me like reengage with that aspect of the business. It is very interesting. I think, was it Janssen Pharmaceuticals they acquired years ago to do their kind of whole like drug development?

Rachel Warren: Yeah.

Toby Bordelon: That's what become, that's kind of forgotten, when the average person thinks of Johnson & Johnson, you don't think about that aspect quite as much, right?

But this is a massive company and good one you said, a steady dividend, the steady growth, they have a better debt rating better than U.S. government I saw [laughs] and I think it's only like one of two companies that has that distinction. So they are not going anywhere. I think it's a very solid company to anchor your portfolio with, I would suspect.

One question I have for you got, I don't know if you have thoughts on this. Do you see them becoming even more of a biotech company or drug manufacturer over time, especially with this COVID vaccine boost they've gotten, does that product mix change at all? Or are they still going to be that in-home medical company that we all know and love?

Rachel Warren: Yeah, I think it's a little bit of both. I mean, I think obviously their consumer health segment is what everyone really thinks of when they think of Johnson & Johnson, and I think that it's already such a giant in that area. I think it can continue to build on top of that. But I do also think that you're going to see a lot more of its expansion specifically in the pharmaceutical world.

I was actually reading a study earlier today and it was saying that Johnson & Johnson controls a roughly 8% share of the global pharmaceutical market. So, I mean, pretty impressive in a global perspective. So I do think there's a lot of room for it to grow, and there I see it going more, continuing to grow both sides. I don't know that I necessarily see it focusing more on one than the other. But I do think it's actually that diversification of its businesses that really make it also such an attractive investment.

Toby Bordelon: Cool, thank you. Fascinating company. It's definitely worth a look, I think for anyone, especially a new investor who's thinking, how do I, if I'm only going to start with maybe ten companies like you did. They want some that have that diversification. How do your diversification in the healthcare pharmaceutical space? This is a way to do it instantly with one company to get massive diversification across that industry.

Rachel Warren: Absolutely.

Toby Bordelon: One worth considering.

Brian Withers: Yes, I look at both AbbVie and J&J, and they have similar aspects. They've been around for over 100 years. They have this massive portfolio. They know how to do R&D. I think that some may discount as these new biotech start-ups are coming up, is that 100 years of experience of dealing with the FDA is a competitive advantage, [laughs] you know?

Rachel Warren: Yes [laughs]. 

Withers: Having worked a decade in companies that were regulated by the FDA, they can show up any day and ask any questions they want. They can disrupt your business. They can poke into all sorts of things and you say, "Thank you, we will get that right away for you," and just to have been through the numerous audits and experiences they have and the relationships that they have with the FDA is certainly something that investors may not think about at first glance.

But I absolutely think that's a plus for them as far as getting new things across the line, as well as if there are problems after the product is released.