There has been a lot of talk about a possible recession next year, when it might come, about how hard it might be, etc. Two healthcare stocks that are likely to thrive in such an environment include Cigna (CI 0.37%) and Johnson & Johnson (JNJ 0.12%).

The two companies have a big international reach and varied revenue streams that will likely benefit from the expected growth in healthcare spending as our population ages.

Cigna's Evernorth is leading the way

Cigna's stock is up more than 53% over the past 52 weeks, while the S&P 500 is down more than 15% over that same period.

Cigna had a strong third quarter, reporting revenue of $45.3 billion, up 3% year over year, and earnings per share (EPS) of $8.97, compared with EPS of $4.80 in the third quarter of 2021.

People think of Cigna as a healthcare insurer, but it's the other half of its business, Evernorth -- with its pharmacy benefits services, specialty pharmacy, and care solutions -- that is driving the company's growth. Evernorth brought in the largest part of the company's revenue in the quarter at $35.7 billion, up 6% year over year. Cigna Healthcare saw its revenue slide slightly to $11.18 billion, down from $11.22 billion in the same period a year ago. 

Next year could be an even bigger year for Evernorth. Cigna is hastily adding biosimilars to its products for 2023, including ones to compete with AbbVie's immunology blockbuster Humira, the top-selling drug last year other than COVID-19 vaccinations. The company is hoping to add to its customer base by reducing the cost of specialty drugs and sees an increased opportunity as it says there will be generic or biosimilar competition for 30% of the top 25 specialty drugs by 2025.

Cigna raised its quarterly dividend by 12% this year to $1.12 per quarterly share, which roughly equals a yield of 1.36%, with a low payout ratio of 20.93%. The company has offered a quarterly dividend only since 2021, but obviously, considering the company's growth, there's plenty of room for dividend increases.

Johnson & Johnson stays up when the market falls

Johnson & Johnson is the ultimate defensive stock. It's up slightly for the year, a little more than 3%, while the S&P 500 has fallen 15% in that period. The company has increased annual revenue for six consecutive years and is on pace to do it again this year. Through nine months, it reported revenue of $71.2 billion, up 3.3% year over year, and EPS of $5.41, down 10.4% over the same period last year.

JNJ Free Cash Flow Chart

JNJ Free Cash Flow data by YCharts

The company is on the verge of one of its largest changes as it plans to spin off its consumer health segment by next November to a separate company, Kenvue, allowing Johnson & Johnson to focus on its two more profitable segments -- medtech and pharmaceutical. While this will hurt the company's diversity of revenue, it is in line with what other pharmaceutical giants are doing. It could pay off big -- since Pfizer spun off its generics to Viatris, in November of 2020, its stock is up 45%.

Through nine months, J&J's pharmaceutical segment is responsible for $39.4 billion in revenue, up 5.2% year over year, while medtech generated $20.6 billion, up 2.2% over the same period last year. By contrast, the consumer health segment reported $11.1 billion in revenue, down 1.1% year over year. It's exciting to think what Johnson & Johnson, with its international marketing power and reach, will be able to do with its $16.6 billion purchase this year of heart pump maker Abiomed. 

Johnson & Johnson is closely identified with its commitment to shareholder returns, through regular stock buybacks and its dividend. The company is a Dividend King that has increased its dividend for 60 consecutive years. It raised its dividend by 6.6% this year to $1.13 per share, providing a yield of around 2.5%, better than the S&P 500 average of 1.82%. The company's cash dividend payout ratio of 64.94% leaves room for future increases.

Both Johnson & Johnson and Cigna trade at attractive valuations, with J&J going for only slightly more than 24 times earnings and Cigna trading for slightly more than 15 times earnings. Considering their strong financial positions and changes in store that could help their margins next year, it makes sense to look at both stocks before other investors look for safe plays during a recession.