Diabetes is huge problem for Americans. Between 1990 and 2010, the number of U.S. residents with diabetes tripled, and the number of new cases annually doubled. Both prevalence and costs associated with diabetes are projected to increase by more than 50% by 2030.
But where there's a problem, there's also an opportunity. Healthcare companies continue to develop innovative new approaches to treating and managing diabetes. This innovation in turn creates value for investors.
At least 15 publicly traded companies have current products addressing diabetes either on the market or in development. A few of these stocks hold the potential to generate market-beating returns for investors. I think that Abbott Laboratories (NYSE: ABT), Becton, Dickinson and Company (NYSE: BDX), and Johnson & Johnson (NYSE: JNJ) will especially stand out over the next few years. Here's why these are three top diabetes stocks to buy now.
Abbott Labs claims a market cap of close to $98 billion. The company's primary focus in the past has been on branded generic drugs, diagnostic systems and tests, nutritional products, and cardiovascular and neuromodulation medical devices. Abbott's diabetes care unit revenue wasn't even listed separately in the company's financial statements.
However, diabetes should be much more important to Abbott in the future. In September, the U.S. Food and Drug Administration (FDA) approved the company's FreeStyle Libre Flash Glucose Monitoring System. It's the first continuous glucose monitoring (CGM) system approved by the FDA that doesn't require a finger-stick blood sample.
As you might imagine, the potential for the FreeStyle Libre system is huge. DexCom (NASDAQ: DXCM) has been the leader in of the fast-growing CGM market so far. FDA approval for Abbott's FreeStyle Libre system caused DexCom stock to plummet because of the threat from Abbott. Although DexCom is developing its own no-finger-stick device, it's about a year away from being able to market the product. That gives Abbott a nice head start.
Abbott was already enjoying a fantastic year even before the FDA decision. The stock is up more than 40% year to date, driven in large part by the company's acquisition earlier this year of St. Jude Medical. This acquisition made Abbott an even more formidable force in the medical device market.
There's also a lot for investors to like about Abbott's dividend. Its yield currently stands at 1.91%. Abbott has increased its dividend for 45 consecutive years and has paid a dividend every quarter since 1924.
Becton, Dickinson and Company
Becton, Dickinson and Company's market cap of nearly $52 billion makes it the smallest of these three top diabetes stocks. However, the company will grow close in size to the other two on the list once it finalizes a planned $24 billion acquisition of C. R. Bard, Inc. (NYSE: BCR).
Around 13% of Becton, Dickinson and Company's total revenue stems from its diabetes care segment. BD's diabetes products include insulin pumps, insulin syringes, pen needles, and sharps containment. Sales for its diabetes care segment is growing by low-single-digit percentages, held back in part because of austerity measures in some European countries.
The addition of C. R. Bard will provide a big boost to BD's revenue and earnings. However, Bard focuses on vascular, urology, and oncology products. BD's diabetes care unit won't be impacted much, if any, by the deal.
BD stock has been a big winner so far in 2017, with shares jumping close to 40% year to date. In addition, the company pays a dividend, which currently yields 1.33%. Like Abbott, both BD and C. R. Bard are Dividend Aristocrats, with BD increasing its dividend every year since 1972.
Johnson & Johnson
Johnson & Johnson is the giant of the group, with a market cap of over $370 billion. J&J's diabetes care unit is a big business on track to generate sales of around $1.6 billion in 2017, but that's only a small sliver of the company's total revenue. However, the company's pharmaceutical segment markets diabetes drug Invokana, which should add another $1.1 billion or so to J&J's total diabetes-related revenue this year.
There's an asterisk needed with Johnson & Johnson, though. Were it not for Invokana, J&J might not be classified as a diabetes stock for much longer. The company announced that it was exiting the insulin pump business. J&J is also evaluating strategic options for its other diabetes care businesses. These options include selling the units and forming partnerships or joint ventures with other companies.
Still, J&J certainly qualifies as a diabetes stock now. And it should be a good one to own over the long run, albeit more because of its pharmaceutical lineup than its diabetes care products. Cancer drugs Darzalex and Imbruvica combined with autoimmune-disease drug Stelara are enjoying strong sales growth. The acquisition of Swiss drugmaker Actelion earlier this year has added a successful pulmonary hypertension franchise to the company's roster. J&J also has one of the best drug pipelines in the biopharmaceutical industry, with promising candidates including prostate cancer drug apalutamide.
Don't forget Johnson & Johnson's dividend, either. Its dividend yields 2.37% right now. J&J is also a Dividend Aristocrat and has raised its dividend for an impressive 55 years in a row.
I don't think investors would go wrong by buying any or all of these diabetes stocks. All three pay great dividends, and all three have decent growth prospects. If I could only pick one of them, though, I'd go with Abbott.
Wall Street analysts project higher earnings growth over the next five years for Abbott than they do for BD or J&J. I suspect they're right. The acquisition of St. Jude Medical was a smart move for Abbott, in my view. I'm also excited about the potential for the FreeStyle Libre CGM system. If you're looking for a growth stock with a solid dividend that's also going to significantly impact how diabetes is managed, I think Abbott Labs is the best option.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool recommends Becton Dickinson. The Motley Fool has a disclosure policy.