If you're shopping for a healthcare stock that promises growth, the medical technology space could offer some good choices. Many suffered at certain points during the earlier days of the pandemic as hospitals postponed nonessential procedures, but since hospitals have resumed business as usual, revenue for these companies is picking up. In fact, some medtech players are even posting impressive growth.
Two giants in the space are Johnson & Johnson (JNJ -0.46%) and Medtronic (MDT 0.62%). They bring in billions of dollars in earnings annually thanks to vast device portfolios and both of these companies could offer you share performance over time. But which one makes the better medtech buy right now? Let's find out.
The case for Johnson & Johnson
J&J is a bit different from Medtronic because it isn't a device-only business. In fact, its biggest business is pharmaceuticals. But this healthcare giant's getting bigger and bigger in the medtech area. In the most recent earnings report, J&J's medtech business grew more than 14% on an operational basis -- surpassing growth of its pharma business.
The company has 12 medtech platforms that generate more than $1 billion annually in revenue. And one of them, its latest addition, is driving growth. I'm talking about heart pump specialist, Abiomed. J&J bought the company late last year and already is benefiting from the operation. For example, Abiomed's sales rose 20% in the quarter year over year and drove gains in J&J's interventional solutions business. And the company continues to look for other acquisition opportunities to supercharge growth.
J&J right now has more resources than ever to grow its medtech business as the company is spinning off its slower-growth consumer health unit into a separate entity. The move allows J&J to focus its investments on medtech and pharmaceuticals. So, a whole new chapter of growth could be right around the corner -- and medtech could lead the way.
The case for Medtronic
Medtronic is a devices giant. In fact, in just the past year, it's won regulatory clearance for about 125 products in key geographies. The company has struggled with growth in recent times, though, even prompting it to launch a transformation plan.
As part of the plan, Medronic has taken steps to divest slow-growth businesses and invest in higher-growth opportunities. It's also cut costs, with the idea of freeing up capital to invest in growth. And it's streamlined processes to become more efficient. The efforts are starting to bear fruit as Medtronic's revenue gained more than 5% in the most recent quarter, beating its expectations.
Moving forward, investors also could expect growth from Medtronic in an area everyone's talking about these days: artificial intelligence (AI). Medtronic already has been using AI throughout its platforms, and it's pledged to put a focus on the technology to offer patients more personalized medicine. For example, Medtronic's spine analyzer allows surgeons to examine possible outcomes for every patient -- helping the surgeon make the best decisions before entering the operating room.
This focus on AI and the company's transformation plan may provide catalysts for earnings and share price growth in the months and years to come.
J&J or Medtronic?
It's clear both of these medical device giants could have a great future. But if you could only buy one today, I would recommend J&J. The company's medical device business delivered impressive growth in the most recent quarter and the elements that drove growth should continue to boost revenue in quarters to come. We probably will have to wait longer to see such growth from Medtronic.
Also, the spinoff of J&J's consumer goods business offers it the resources to really put its investment dollars behind the promising area of medtech.
Meanwhile, J&J shares are less expensive than those of Medtronic, trading for 15 times earnings estimates versus 17 for Medtronic.
All of this means that, if you're looking for a healthcare stock to add some growth to your portfolio, right now is a great time to buy powerhouse J&J.
