Investing in a bull market isn't always as straightforward as it seems. It's easy to find stocks that are doing well during a bull run, but some end up rising too much, too fast, leading to significant corrections once things turn sour.
Finding stocks that aren't keeping pace with broader equities can be a decent strategy, provided there are good reasons to think these corporations can turn things around and deliver solid returns over the long run. Let's discuss two beaten-down stocks worth buying in this ongoing bull market: Johnson & Johnson (JNJ 1.49%) and Doximity (DOCS 1.31%).
NYSE: JNJ
Key Data Points
1. Johnson & Johnson
Johnson & Johnson has been around for over a century, but that's no guarantee it will continue to thrive for a long time. In recent years, the drugmaker has dealt with more and more legal challenges, including thousands of lawsuits related to its talc-based products that allegedly gave consumers cancer.
Then, in 2022, the Inflation Reduction Act (IRA) became law in the U.S. and, among other things, granted Medicare the power to negotiate the prices of drugs. That will reduce revenue for the companies that make the medicines Medicare will target. Johnson & Johnson is on that list.
With all that going on, can J&J still deliver decent returns? The answer is a resounding yes. Despite its legal troubles, the company's underlying business remains strong, especially its balance sheet. Johnson & Johnson is one of the very few companies with a credit rating higher than the U.S. government's.
But the company also has decent growth prospects. Having separated its low-growth consumer health business, J&J is doubling down on its pharmaceutical and medtech units. That should allow the company to increase its revenue at a faster pace.
The drugmaker's IRA-related problems shouldn't be much of an issue for now. Its deep pipeline should allow it to get around that potential obstacle in the medium term. After all, the company is great at developing brand-new medicines. Last year, it earned approval for a novel cancer medicine, Talvey. With dozens of ongoing programs, Johnson & Johnson should see even more success.
Let's not forget J&J's streak of 61 consecutive years of dividend increases. The dividend doesn't look like it's in danger, so the stock remains an excellent target for income-seekers.
However, Johnson & Johnson probably isn't for investors looking for high-growth companies. Even with improved top-line growth rates thanks to the spinoff of its consumer health segment, there are much better companies in this regard. Still, the drugmaker may be ideal for low-risk-tolerance, dividend-seeking investors focused on the long game.
NYSE: DOCS
Key Data Points
2. Doximity
Doximity is a networking platform for medical professionals, but the company offers many other services, too. Its news feeds help physicians read important developments in their fields, clinical trial results, and more. Doximity's telehealth function helps doctors connect with patients, and the platform allows them to securely send private documents.
The company earns most of its money by charging fees to pharmaceutical companies and hospital systems that pay to advertise drugs, jobs, or other things on its platform. Doximity became a publicly traded corporation in mid-2021, after which its shares initially soared. However, it's been a downward spiral for the better part of two years now. What gives?
Doximity's slowing revenue growth rates have been a significant factor. In its latest reporting period (ended Dec. 31), the third quarter of its fiscal 2024, Doximity's revenue increased about 17% year over year to $135.3 million. Here's how that compares to previous quarters:
DOCS Revenue (Quarterly YoY Growth) data by YCharts.
However, there were some bright spots. The company remains deeply profitable and boasts incredibly juicy margins. Its net income totaled nearly $48 million, up 43.2% from the year-ago period. The company's net profit margin climbed to 35.4%, compared to the 29% reported in the prior-year quarter.
Even while the top line has not grown as fast, Doximity has been able to keep its cost of goods sold and operating expenses well in check. Sales are still growing faster than both categories. And Doximity still has a massive addressable market. The company sees an $18.5 billion opportunity, of which it has grabbed just a fraction.
It's also worth noting that Doximity benefits from the network effect. The company estimates that more than 80% of physicians in the U.S., as well as the top 20 pharmaceutical manufacturers and hospitals, are current users. The more physicians join its platform, the more it becomes attractive to hospital systems, pharmaceutical companies, and healthcare professionals who have yet to opt in.
That should allow Doximity to remain a leader in this small niche in the next decade. Despite its recent slowdown, the company can offer strong returns to investors willing to be patient.
