President Donald Trump's macroeconomic policies are taking center stage on Wall Street. The 47th U.S. president has decided to implement aggressive tariffs on imported goods from most countries, although he recently paused these plans for 90 days. Regardless, corporations are looking for ways to avoid paying these tariffs.
That includes two pharmaceutical leaders: Johnson & Johnson (JNJ 0.54%) and Novartis (NVS +0.46%). The industry has so far escaped Trump's tariffs, but that might not last for much longer, which makes these drugmakers' plans critical to monitor. Should investors still consider purchasing shares of Johnson & Johnson and Novartis in this environment?
NYSE: JNJ
Key Data Points
1. Johnson & Johnson
One way to avoid tariffs is to manufacture locally. That's what Johnson & Johnson plans on doing more of. The healthcare giant had already been shoring up its manufacturing capacity in the United States, but in March, it announced it would increase these investments. It plans to spend over $55 billion in the U.S. over the next four years, which is 25% more than it spent in the previous four years. J&J will build new facilities and expand some existing ones.
But it will take time for the company to move more of its manufacturing back into the U.S., and in the meantime, it could feel the impact of the tariffs. That's besides other issues the drugmaker faces in the medium term. It's still dealing with thousands of talc-related lawsuits. Furthermore, with the Inflation Reduction Act (IRA), a law passed in the U.S. in 2022 that granted Medicare the power to negotiate the prices of certain drugs, Johnson & Johnson will generate lower revenue from some products.
That said, there are plenty of things to like about J&J's business. Its significant investment in the U.S. to avoid tariffs demonstrates its ability to adapt to changing economic conditions. And that adaptability is precisely what makes this corporation massively successful. No pharmaceutical company generates more in annual revenue. Considering that, it's unsurprising the pharmaceutical company has existed for more than a century. Whether it's dealing with the IRA or some other legal challenge, the smart money is on Johnson & Johnson overcoming it.
It has done so plenty of times throughout its history. The pharmaceutical leader also boasts an AAA rating from Standard & Poor's -- that's a higher credit rating than the U.S. government's. The current legal challenges won't be its undoing.
Meanwhile, it continues to generate strong financial results. Growth in revenue and earnings isn't spectacular, but is steady and reliable. J&J has a deep pipeline of investigational drugs and a diversified medical device business.
Lastly, as more evidence of a robust business, it has now increased its payouts for 63 consecutive years, making it a Dividend King. Rather than avoiding Johnson & Johnson, investors seeking reliable income payers in these volatile times should seriously consider buying its shares.
NYSE: NVS
Key Data Points
2. Novartis
Novartis is also shoring up its U.S. manufacturing footprint. The company will invest $23 billion over five years to build seven new facilities and expand three more. In the end, it expects to locally manufacture 100% of the medicines it sells in the U.S. That's all good news for shareholders, as it shows that even if Trump's tariffs outlast his administration, Novartis is well-positioned to mitigate their impact.
The drugmaker expects to grow its revenue at a compound annual growth rate (CAGR) of 5% through 2029, a decent performance for a pharmaceutical giant. Novartis will lose U.S. patent exclusivity for some major products, including heart failure medicine Entresto, this year. Entresto generated $7.8 billion in sales last year, up 30% year over year, so this will be a significant loss.
However, Novartis will eventually fill the gap thanks to newer products. Fabhalta, first approved in the U.S. in 2023 to treat a rare blood disease called paroxysmal nocturnal hemoglobinuria, could generate peak sales of $3.6 billion according to some estimates. There will be others that will allow Novartis to clock that CAGR of 5% through 2029, despite its best-selling drug going off-patent in the U.S. this year. Beyond the next four years, the company's ability to generate consistent earnings, its existing lineup, and its deep pipeline should allow the stock to perform well.
Additionally, Novartis has increased its payouts for 28 consecutive years, a strong streak that makes it attractive to income-oriented investors. Despite the threat of tariffs, I think this dividend stock is a buy.
