Over the bulk of the prior decade, shares of the diversified healthcare giant Johnson & Johnson (JNJ 0.06%) consistently delivered market-beating returns (when including its dividend as part of the total return on capital). Investors flocked to it for its rock-solid balance sheet, its status as a Dividend Aristocrat, and its unique ability to continually bring fresh new blockbuster pharmaceutical products to market in a timely manner.

Since the start of the current decade, however, J&J's shares have largely lagged behind the broader markets. The stock has lost its luster of late due to the litigation over its baby powder; a lack of enthusiasm among investors for the $30 billion acquisition of Actelion, a maker of pulmonary arterial hypertension treatments; its premium valuation, along with the comparatively underwhelming sales of its COVID-19 vaccine. 

Can J&J's stock return to its former market-beating ways or should investors move on to greener pastures? Here is a look at both sides of the issue from two of our healthcare contributors. 

Bronze figures of a bill and a bear squaring off against each other.

Image source: Getty Images.

Big departures from the norm and vaccine headwinds don't make for a compelling buy

Alex Carchidi: J&J may be a stalwart healthcare stock today, but the $444-billion colossus is about to undergo quite a few major changes that could leave it underperforming. 

Per its announcement on Nov. 12, the company plans to split into two entities within the next 24 months. One of the new businesses will be devoted to consumer health goods; the other will be dedicated to developing and commercializing pharmaceuticals and medical devices. The transition will be one of the biggest in the company's 135-year history, and it'll see shake-ups in every dimension, including senior leadership. 

And that means there's a major risk on the horizon that shareholders haven't had to deal with ever before. Splitting the business into two could turn out for the best, but it's important to remember that things haven't been consistently trending in the right direction for a while now. Quarterly revenue has risen by only 28.9% in the last five years, during which its quarterly profit margin contracted by 25.4%. Likewise, quarterly net income has dropped by 3.85%, and quarterly free cash flow (FCF) has fallen by more than 19% in the same period. There's no guarantee that the split will solve these issues.

Aside from the uncertainty of the split, the company also faces new headwinds for its coronavirus vaccine revenue, which is slated to bring in $2.5 billion for 2021. On Dec. 16, the Centers for Disease Control and Prevention issued a recommendation that its vaccine shouldn't be used if shots from competitors like Pfizer (PFE -0.43%) are available. This advisory comes amid ongoing concern about the J&J vaccine's lower level of efficacy, as well as its potential to cause rare and life-threatening complications for certain people. 

So now is a particularly risky moment to invest in J&J stock. Time will tell whether the company can navigate its breakup with grace.

A return to form

George Budwell: Wall Street hasn't been particular receptive to J&J's proposed split, and for good reason. After all, the company's consumer healthcare unit houses several iconic brands like Benadryl and Tylenol that are proven cash cows. Wall Street's misgivings about this spinoff are arguably overblown, however. As proof, Pfizer recently slimmed down by carving out its legacy products business with no ill effects. 

And J&J, for its part, appears more than capable of pulling off this same maneuver without any major hiccups. Underscoring this point, the company has a wide range of high-growth pharmaceutical products like the multiple myeloma drug Darzalex, the immune-mediated inflammatory disease medication Stelara, and the plaque psoriasis treatment Tremfya.

These three key products are big reasons the company's pharmaceutical segment saw a noteworthy 13.8% year-over-year rise in sales during the third quarter of 2021, when excluding acquisitions and divestitures. What's more, J&J is one of the best in the business in terms of churning out new pharmaceutical products for areas of major unmet medical needs.

In effect, this spinoff ought to allow the company's pharmaceutical unit to shine through from a top-line standpoint. And that's a big plus for growth-oriented investors. 

Income investors might be concerned about the potential impact on the company's highly coveted dividend. Fortunately, J&J's brain trust has already stated that future dividend payments ought to remain roughly in line with its current quarterly distribution post-split. 

All told, J&J's stock seems poised to morph into a top growth and income play following this upcoming split.