Pharmaceutical giant Johnson & Johnson (JNJ +0.32%) has performed well this year. The company's shares are up by 45% since January.
However, many investors, including institutional ones, still believe the healthcare leader has more upside ahead and have recently increased their stakes in the company. For instance, Bank of Nova Scotia, one of the largest banks in Canada, recently added thousands more shares of Johnson & Johnson, thereby increasing its stake in the company by 29%. Vanguard Group, a leading investment management firm, also bought more of Johnson & Johnson's stock.
With these and several other institutional investors buying shares of the healthcare specialist, should you follow their lead?
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Johnson & Johnson is showing resilience
While 2025 has been a strong year for Johnson & Johnson on the stock market, it has struggled over the past few years. The drugmaker had to contend with government drug price negotiations that targeted several of its medicines. The new negotiated prices will only take effect starting next year, but these developments clearly affect Johnson & Johnson's medium-term outlook.
Elsewhere, the company is still dealing with plenty of lawsuits that allege that its talc-based products caused cancer. Further, Johnson & Johnson is facing patent cliffs. Stelara, an immunology medicine, lost patent exclusivity in Europe last year and in the U.S. this year. Stelara was also part of the medicines targeted by the government for price negotiations.
Amid all this, Johnson & Johnson must navigate the same microeconomic environment as everyone else, with the potential threat of tariffs that could increase its costs and reduce its operating margins and profits.
Despite all that, Johnson & Johnson has performed pretty well this year. The company's third-quarter sales jumped by a respectable 6.8% year over year to $24 billion, despite Stelara's dropping revenue. Johnson & Johnson's adjusted earnings per share increased 15.7% year over year to $2.80.
Part of Johnson & Johnson's secret is its vast, diversified lineup of products. Even losing one of its growth drivers, Stelara, did not significantly impact its financial results, as others picked up the slack. It is also relying somewhat on newer launches. For instance, Carvykti, a cancer medicine approved in 2022, is already generating well over $1 billion in annual sales.
Additionally, Johnson & Johnson's medtech business, which accounted for over 35% of its revenue as of the third quarter, further diversifies its revenue stream. Johnson & Johnson's extensive portfolio and ability to develop new products enable it to generate consistent revenue and earnings, even when facing challenges, making it a resilient company.
NYSE: JNJ
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Why it can overcome the challenges
Still, Johnson & Johnson will eventually have to find ways to address the obstacles ahead. Thankfully, the company can do so for many of the same reasons already discussed.
Even as drug price negotiations lead to lower sales for some products, J&J has a large lineup and pipeline, as well as the flexibility to steer its R&D efforts toward areas where it will be less exposed to this problem. That's how Johnson & Johnson has survived numerous regulatory changes over the past few decades -- the company has been in existence for over 100 years.
It has many potential growth avenues ahead, including its ongoing work in the robotic-assisted surgery (RAS) market. Johnson & Johnson is testing its Ottava RAS system in the U.S. Earning clearance for this device would allow it to join this underpenetrated market.
What about the many lawsuits threatening Johnson & Johnson? It would obviously be beneficial for the company to put those behind it. But whatever happens, we can reasonably be sure that it won't break its business.
Johnson & Johnson has the highest credit rating available -- even higher than that of the U.S. government -- despite this issue. Clearly, it can manage its financial obligations. It is partly due to its financial strength and robust balance sheet that several judges have rejected its attempt to eliminate these lawsuits through a bankruptcy maneuver involving a subsidiary.
Despite the roadblocks, Johnson & Johnson's prospects remain strong. Then there is the dividend. Johnson & Johnson is a Dividend King, or a company that has raised its payouts annually for at least 50 consecutive years. That's another strong sign of the company's incredible resilience, and it is one more reason why you should follow the lead of these institutional investors and purchase the company's shares.
