Johnson & Johnson (JNJ 4.02%) isn't exactly a controversial stock because of its reputation for stability, which it earned by being one of the largest and longest-lived healthcare businesses in the world. But with the total return of its shares reaching 160% over the last 10 years compared to the S&P 500's return of 212%, it's reasonable for investors to wonder whether the stock has in it to outperform the market -- or at least come a bit closer to market return levels -- over the next decade.

So, let's examine the issue by making an argument why someone might still want to buy Johnson & Johnson stock, and then look at the opposition from the bears to get a more complete picture of what shareholders could have in store.

The bull thesis could get stronger

Before we dive into the bull thesis, it's important to note that the Johnson & Johnson of the future will be different from the one of today. Before the end of the year, the company plans to spin off its consumer health division into a new business that will be called Kenvue.

In 2022, that segment had $14.9 billion in revenue, which makes it significantly smaller in comparison to its sales of pharmaceuticals, which brought in $52.5 billion, and medical devices and technologies, which had $27.4 billion in sales. The consumer health segment is also the one that holds the rights to many of the brands that you're probably familiar with, like Tylenol and Aveeno.

So by spinning off the segment, the new J&J will be separating itself from the long-lived brands and evergreen product lines that have delivered billions in revenue over the years, with the idea being that it can increase its pace of growth by focusing on its two remaining segments, both of which are more dynamic. 

In that scenario, the bull thesis for the stock is that investors who buy it today will get shares of both of the entities created by the spinoff. In theory, that should give shareholders medium-pace growth from the pharmaceutical and medical technology company, as well as the slow-but-reliable growth from the consumer health company. And both will pay a dividend, of course.

Right now, Johnson & Johnson has 109 clinical programs in its pharmaceutical pipeline, 43 of which are in late-stage trials. What's more, it could get five new indications for its medicines that are already approved in major markets like the U.S. and the E.U. In 2022, the segment grew by 6.8% on an operational basis. For reference, in 2012, it grew by exactly the same amount, also on an operational basis.

So if the spinoff can sustainably juice a few more percentage points from roughly that pace of annual expansion, it will be a success, and investors will benefit over the long term. It will probably take a few years for the spinoff-driven bull thesis to prove itself, assuming the bulls are right. The only question is, can the company's plan work?

The bear thesis is hard to argue with

The bear thesis for J&J stock is that for a business as large and as established in its markets as this company is, it probably doesn't have much to gain in efficiency from the spinoff. Plus, the spinoff creates extra expense and more risk that could disrupt an otherwise slowly growing and stable corporate giant.

And even without the questionable impacts of the spinoff, bears are likely to point out that J&J's stock hasn't been a better investment than an index fund for quite some time, even when factoring in reinvestment of its dividends.

Stoking the flames of the bear thesis is that management has said little about concrete plans for how the spinoff will actually benefit shareholders right out of the gate.

And separating such a large segment means significantly reducing the pool of resources available to both of the new entities. While it's very unlikely that Johnson & Johnson could go under as a result, one or both of the new entities might need to take out fresh debt to pay for the transition, which would then cost shareholders in the form of interest payments that couldn't be reinvested for growth, or distributed as dividends. 

So the bear thesis is largely about the heightened risk of buying J&J's shares today in light of growth that is unlikely to be rapid regardless of whatever the new businesses do.

Separately from the above, there's also the issue of its ongoing legal tussle regarding its liability from its talc-based products that tens of thousands of people say gave them cancer over the last couple of decades. The company offered to settle with the plaintiffs for $8.9 billion recently. It's not too clear how the issue will be finally resolved, but it's clear that J&J will be forced to pay out billions.

What's the verdict?

At the moment, the questions raised by the bear thesis are more compelling. Until management of the pharmaceutical and medical tech operation provides a more concrete plan for the use of capital after the spinoff, there isn't much point in investing in a slowly expanding business that's approaching a major fork in the road and a big and sticky legal liability. 

While it's probably the case that the bulls who buy the stock will get paid a decent dividend income for many years even if the spinoff doesn't go well, J&J's minimal chances of outperforming the market make it a tough sell. The company is still probably a safer investment than most -- but before the spinoff was announced, there wasn't any need to say "probably."