Better Buy: AbbVie Inc. vs. Johnson & Johnson

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AbbVie (NYSE: ABBV) and Johnson & Johnson (NYSE: JNJ) battle each other in the marketplace every day. But they also are partners. That's not an unusual scenario in the biopharmaceutical world today.

Since being spun off from parent Abbott Labs (NYSE: ABT) in 2013, AbbVie stock's performance has more than doubled that of Johnson & Johnson. The two companies face different opportunities and challenges in the years ahead than they have in the past, though. So which big pharma stock is the better buy now?

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The case for AbbVie

Investors typically fall into one of three categories: growth, income, or value. AbbVie is one of those relatively rare stocks that offer something to each type of investor.

AbbVie's historical growth stemmed primarily from Humira, the top-selling drug in the world. The autoimmune-disease drug continues to generate 65% of AbbVie's total revenue. And sales for Humira keep growing. AbbVie projects the drug's sales will approach $21 billion by 2020.

Future growth, though, will be driven by other products. At the the top of the list is Imbruvica, which AbbVie co-markets with Johnson & Johnson. Sales for the cancer drug jumped 40% last year and peak annual sales could top $7 billion within a few years. AbbVie's new hepatitis C drug, Mavyret, is expected to become the company's next blockbuster.

AbbVie CFO Bill Chase recently stated that the drugmaker's pipeline has "almost an embarrassment of riches." The list of these "riches" includes endometriosis and uterine fibroids drug elagolix, and autoimmune-disease drugs upadacitinib and risankizumab.

For income-seeking investors, AbbVie offers a dividend that currently yields a little under 4%. Since its spinoff from Abbott five years ago, AbbVie has increased its dividend by a whopping 140%.

The stock is also priced attractively, something value investors would like. AbbVie shares trade at less than 11 times expected earnings. Factoring in the company's growth prospects makes the valuation look even better.

The case for Johnson & Johnson

How does Johnson & Johnson measure up in the three areas of growth, income, and value? Pretty well.

Johnson & Johnson hasn't achieved the rate of earnings growth or stock gains that AbbVie has in recent years. Yet the company appears to be positioned for future growth thanks to acquisitions and a strong pipeline.

Several acquisitions over the past couple of years have boosted J&J's top and bottom lines. The company's medical-device segment acquired Megadyne Medical Products, Torax Medical, and Abbott Medical Optics. Johnson & Johnson's biggest recent acquisition, however, was the $30 billion purchase of Swiss drugmaker Actelion last year.

The company claims several drugs with fast-growing sales, including Imbruvica, multiple myeloma drug Darzalex, and Stelara, which treats psoriasis and psoriatic arthritis. J&J's pipeline includes well over 30 late-stage programs. Some target potential new indications for already-approved drugs such as Darzalex, Imbruvica, and Stelara. Others are testing new drugs, notably including prostate cancer drug apalutamide, which market research firm EvaluatePharma ranked as the No. 2 most valuable pipeline asset in the biopharmaceutical industry.

Johnson & Johnson boasts an impeccable track record when it comes to dividends. The company has increased its dividend for a remarkable 55 consecutive years. J&J's dividend currently yields 2.64%.

As for valuation, J&J stock trades at less than 15 times expected earnings. That's well below the S&P 500 index's average forward-earnings multiple of 17. It's also lower than the average for healthcare stocks in the S&P 500.

Better buy

So far I haven't mentioned some of the challenges facing these companies. But challenges exist for both: AbbVie announced a significant pipeline setback recently, when Rova-T failed in a phase 2 study as a third-line treatment for relapsed/refractory small-cell lung cancer. And Johnson & Johnson's top-selling drug, Remicade, is losing market share to biosimilar competition.

These issues are not insignificant, but I think that both AbbVie and Johnson & Johnson should be able to overcome their respective obstacles.

AbbVie clearly boasts a more attractive dividend and valuation than J&J does. The company's growth prospects also appear to be higher, even with the Rova-T setback. On the other hand, Johnson & Johnson's business spans across healthcare, including consumer products, medical devices, and pharmaceuticals. The healthcare giant is certainly more diversified than AbbVie is, and arguably claims a stronger moat.

My view is that both of these stocks will be winners for long-term investors. If I could choose only one of these stocks, though, I'd go with AbbVie. The company has a compelling growth story (again, even with the uncertainty over Rova-T) and a fantastic dividend. The takeaway: AbbVie has something to offer all types of investors.

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Keith Speights owns shares of AbbVie. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure policy.