Healthcare never sleeps. There is always demand for medical services, regardless of the state of the economy. Companies that offer these necessary goods and are innovative enough to keep up with the changing trends in the sector tend to last. That describes Johnson & Johnson (JNJ 0.63%) and Medtronic (MDT 1.16%) well. Both are among the largest healthcare companies in the world, have proven innovative abilities, and have long track records of success. And despite their failure to keep pace with the market this year, Johnson & Johnson and Medtronic are still worth investing in. Let's discuss why.
NYSE: JNJ
Key Data Points
1. Johnson & Johnson
Johnson & Johnson's business spans the pharmaceutical and medical device industries. It is one of the more prominent players in both. Its portfolio of products across these businesses is vast, comprehensive, and diversified. Within pharmaceuticals, Johnson & Johnson develops drugs in the fields of oncology, immunology, infectious diseases, neuroscience, and more. It boasts more than 10 blockbuster medicines, too. Its medical device segment operates across vision, surgery, orthopedics, and an interventional solutions franchise.
The company's revenue and earnings are generally predictable. In other words, Johnson & Johnson's business looks like a picture of stability, at least on paper. That hasn't been the case in recent years, though. Various troubles, especially legal and regulatory ones, have harmed its business and image. That includes the thousands of lawsuits it faces regarding its talc powder -- plaintiffs allege it gave them cancer -- and a new law in the U.S. that will allow Medicare to negotiate the price of some medicines.
However, these headwinds won't sink Johnson & Johnson. Among its recent moves to improve its prospects include its decision to spin off its consumer health unit into a stand-alone company. This should help boost revenue growth in the mid-term given consumer health was the weakest segment on that front. Johnson & Johnson also strengthened its medtech business with the acquisition of Abiomed, which focuses on developing products to improve patients' cardiac health, in a transaction that cost a bit under $17 billion. While these are some of J&J's latest moves, it's essential to also point out its long history of navigating the highly regulated healthcare industry. The past isn't a guarantee, but Johnson & Johnson has demonstrated a culture of innovation and a business flexible enough to adapt to the changing demands and challenges of various regulatory rules and guidelines.
Lastly, Johnson & Johnson's dividend history speaks for itself. The company has raised its payouts for the past 62 consecutive years, which makes it a Dividend King, a feat that requires an incredibly robust business. Investors can trust that Johnson & Johnson will deliver solid returns and growing payouts for a long time.
The stock is trading at a forward price-to-earnings (P/E) of 13.8. The average for the healthcare industry is 18.5, and that of the S&P 500 is 21.4 (as of July 5). Johnson & Johnson looks reasonably valued at current levels.
NYSE: MDT
Key Data Points
2. Medtronic
Medtronic, a behemoth in its own right, is a medical device specialist with a firm foothold in more than 150 countries worldwide and a portfolio of products that routinely earns new approvals or label expansions. Though business wasn't good during the depths of the pandemic, the company has bounced back somewhat, although revenue growth remains slow. Medtronic is still looking for a solution to its top-line growth problems. The company had plans to separate its patient monitoring and respiratory intervention business, which it ended up rolling back.
Fortunately, Medtronic can benefit from several growth opportunities, though they might take time to materialize. One of them is artificial intelligence, which it is implementing across various business lines and products to increase productivity and the performance of some of its devices. Another key growth area for Medtronic is robotic-assisted surgery (RAS). The company has been developing an RAS machine for years to compete with the leader in the field, Intuitive Surgical. Though Medtronic's device, the Hugo system, has yet to earn approval in the U.S., it is working toward that goal. The RAS market is severely underpenetrated, according to Medtronic's estimates. Last year, the healthcare giant found that just 5% of surgeries that could be performed robotically currently are.
Another key growth area for Medtronic is diabetes care. The number of people who have diabetes has increased in recent decades. The company develops innovative insulin pumps to help diabetics better manage this chronic health condition. The business has a major opportunity in serving expanding populations of diabetics in regions with less access to healthcare. Medtronic should take advantage of these (and other) growth opportunities and provide consistent financial results, just as it has in the past.
Furthermore, Medtronic also has an excellent dividend track record. It is getting close to Dividend King status, with an active streak of 47 consecutive payout increases. That makes it an excellent stock for income seekers, especially while its forward P/E is a reasonable 14.2.
