If there’s one health-care stock every investor knows by name, it’s Johnson & Johnson (NYSE:JNJ). This industry titan makes everything from consumer health products to medical devices to pharmaceuticals, reaching into every niche of the medical sector. It’s a strong dividend stock with a history of stability — there’s seemingly some perk for every J&J investor.
However, growth investors might want to take a look elsewhere. For all J&J does right, it’s anything but a fast-growing, chart-topping stock for those looking for the best possible annual returns. While J&J isn’t short on financial growth and makes a great foundation for any portfolio, a few key trends should make growth investors think twice before doubling up on shares.
Core businesses, slow growth
J&J is much more than a medicine company, and is far more diverse than its Big Pharma rivals. It is heavily reliant on sales of consumer health products and medical devices. In 2012, these two segments made up more than 62% of all revenue.
Unfortunately for growth investors, these two segments aren’t exactly setting the markets on fire. Consumer health sales are a great, stable foundation for risk-averse investors, but there’s little growth to be had here: Revenue fell at five of the six consumer health businesses last year, with only oral-care sales remaining flat. With tightening consumer wallets and hospital budgets under pressure, expect that trend to keep up in the near future.
Medical devices can be a great growth driver: J&J proved as much when the company bought orthopedics firm Synthes last year in a $12 billion deal. That acquisition sparked a huge jump in the company’s orthopedics revenue. Unfortunately, J&J’s most recent earnings report has shown that without the Synthes deal, revenue growth has been elusive for the company’s medical device segments.
Orthopedics revenue should continue to grow in the future: Rival Stryker Corporation (NYSE:SYK) recently posted growing orthopedics revenue despite its troubles with hip implant recalls and pricing pressures in the industry, and age and obesity-related trends should keep demand high for years to come. J&J’s other medical device segments haven’t been so lucky recently, and slow, steady growth outside of orthopedics looks to stick around for some time as the medical device industry struggles.
If medical device revenue and consumer health sales aren’t growing at a good clip, pharmaceuticals can always drive growth. Unfortunately, while J&J’s drug business is top-notch, it’s not lighting up the markets like a fresh, new biotech firm.
Diluting the blockbuster drugs
J&J’s pharmaceutical business is massive, covering everything from oncology to immunology and more. That treatment diversity is a blessing for income investors and shareholders seeking stability in a volatile industry like health care, but for growth investors, it can be a curse.