Better Buy: Johnson & Johnson vs. AbbVie

By Keith Speights Markets Fool.com

One company has been in business for 130 years. The other got its start as a stand-alone entity in 2013. But both Johnson & Johnson (NYSE: JNJ) and AbbVie (NYSE: ABBV) have rewarded shareholders with solid gains and nice dividends in the past few years. Which is the better pick for investors now?

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The case for Johnson & Johnson

Let's first play devil's advocate and discuss why not to buy Johnson & Johnson's stock. Probably the biggest negative for J&J is that growth has been less than inspiring. The company recently announced its fourth-quarter and full-year 2016 results. Sales grew only 2.6% in 2016 from the prior year. Adjusted earnings increased 7.6% year over year.

Two of Johnson & Johnson's business segments -- consumer and medical devices -- saw sales decline in 2016 compared to the prior year. J&J's pharmaceuticals segment grew revenue, but only by 6.5%.

Now that we have that out of the way, let's look at the reasons why Johnson & Johnson remains a good long-term pick. I'd put cash flow at the top of the list. J&J generated operating cash flow of well over $15 billion last year. There aren't many companies producing that much cash, especially in the healthcare industry.

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That gives Johnson & Johnson a lot of flexibility to do the kinds of things that drive the stock higher. Increasing dividends is one of those things. J&J has raised its dividend 54 years in a row. Buying back shares is another. J&J also has plenty of money to use in making acquisitions.

Perhaps most importantly, the company's steady cash flow provides a level of comfort to investors. Even though J&J's growth wasn't stellar last year, the stock still went up nearly 15%. The reality is that Johnson & Johnson doesn't have to produce high growth rates to attract investors. That's a really good reason to like this stock.

The case for AbbVie

Probably the biggest knock against AbbVie is that the company continues to be highly dependent on one product. Autoimmune disease drug Humira generated over three-fifths of AbbVie's total revenue last year.

The good news is that Humira's sales keep on growing. That shouldn't change anytime soon. Although the U.S. Food and Drug Administration (FDA) approved a biosimilar to Humira last year, AbbVie should be able to push the threat back several years through litigation.

Even better news is that AbbVie has other products that are rapidly growing sales. Cancer drug Imbruvica is really taking off. (This momentum also helps J&J, which markets the drug outside of the U.S. and co-markets Imbruvica with AbbVie in the U.S.)

AbbVie also claims a robust pipeline. The company could submit for approval of another indication for Venclextaas a first-line treatment of relapsed/refractorychronic lymphocytic leukemia (CLL) this year pending good results from a late-stage study. AbbVie hopes to launch its next-generationhepatitis C virus (HCV) combo treatment later this year if the FDA gives a thumbs-up. Other promising candidates include experimental endometriosis drugelagolix and lung cancer drug Rova-T.

On top of its tremendous growth potential, AbbVie also pays one of the best dividends in the healthcare industry. Its dividend yield currently stands at 4.19%.

Better buy

I have liked Johnson & Johnson for quite a while. It's a well-run company with a long track record of success. I think buying J&J's stock and holding on to it will pay off nicely for investors. However, AbbVie is the better choice in my view.

AbbVie is growing faster than Johnson & Johnson and should continue to do so. It has a better dividend yield than J&J. Its dividend is growing faster than J&J's is. AbbVie's valuation also looks more attractive than J&J's does. The day will come sooner or later when Humira is knocked off its perch. Until then, AbbVie should continue to be a big winner for shareholders.

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Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Johnson and Johnson. The Motley Fool has a disclosure policy.