Healthcare stocks make great additions to your portfolio at any time. You generally can count on the biggest players for a certain stability in earnings. That's because, in good times and in bad, people need their medications and medical procedures. And, when you buy these stocks, you often can benefit from passive income through dividend payments too.
Medtronic (MDT 0.37%) and Johnson & Johnson (JNJ 1.49%) are perfect examples of this type of winning long-term investment. They're both medical device leaders -- and J&J also has a pharmaceutical business.
But if you could buy just one of these top stocks right now, which should you go for? Let's find out.
The case for Medtronic
Medtronic sells devices worldwide related to diabetes, cardiovascular, neuroscience, and surgery. In fact, the company is so enormous that just in the past year it's won regulatory clearance for 150 products. Thanks to its vast portfolio, Medtronic has increased earnings over time.
Still, it isn't easy for a company with such a wide range of products to keep growth going and headwinds at bay. So, in order to boost growth, Medtronic launched an "aggressive transformation." This includes spinning off certain businesses that are weighing on growth, improving manufacturing and the supply chain, and cutting costs.
In recent times, higher inflation, coronavirus disruptions in China, and negative currency impact have weighed on earnings. But as these temporary problems lift and Medtronic's transformation progresses, earnings should improve too.
In fact, in spite of today's troubles, the company still managed to deliver revenue and net income that beat its guidance in the most recent quarter. And it even lifted its full-year revenue and earnings per share outlook. CEO Geoff Martha said during the earnings call that the company is "confident in delivering durable revenue growth over the coming quarters."
Meanwhile, Medtronic continues lifting its dividend, recently reaching 45 consecutive years of increases. So as investors wait for more growth from Medtronic, they can benefit from passive income.
The case for Johnson & Johnson
Johnson & Johnson is also a big player in the world of medical devices. And the company strengthened its position with the acquisition of heart pump maker Abiomed late last year. That addition means J&J now has 12 medtech platforms with more than $1 billion in annual sales. In the most recent quarter, patient use of Abiomed products increased in the teens in the U.S. and Europe and by 30% in Japan.
But J&J isn't only a medtech company. The company also has a pharmaceuticals business. And J&J has a consumer health unit that it's in the process of spinning off.
This is a great move because consumer health generally has been a slower-growth business and has contributed less to J&J's revenue than medtech and pharmaceuticals. So, the spinoff should be positive because consumer health no longer will drag down overall growth.
As for pharmaceuticals, J&J originally set a target for $60 billion in sales in 2025. That would represent a 15% increase from last year.
Currency impact may weigh on this by a couple of billion dollars, the company says. But this still represents a considerable gain. And it's thanks to new potential products and indications approaching the finish line.
Like Medtronic, J&J offers investors a long history of dividend growth. In J&J's case, we're talking more than 50 years. That puts J&J on the elite list of Dividend Kings.
Medtronic or J&J?
Both Medtronic and J&J offer investors a solid track record, a huge portfolio of products, and passive income. But here's why today I would favor J&J.
First, J&J offers a bit more diversification -- since, in addition to medtech, it also owns a pharmaceuticals business. And it looks like pharmaceuticals should drive significant growth this decade.
At the same time, the spinoff of consumer health ensures J&J isn't weighed down by too many businesses -- and can focus on what delivers the most growth.
Finally, it's great that Medtronic shares have shown some momentum this year. They've advanced 15%, while J&J has dropped 11%. Still, this is just a short-term observation. Both of these stocks have what it takes to rise over time.
And right now, J&J offers a better entry point. It's trading for 14 times forward earnings estimates, compared to 17 for Medtronic. And that's why, if I could buy only one of these players today, I would go for J&J.
