Johnson & Johnson (JNJ): Buying Isn’t for Growth Investors

The company reported strong growth in several promising drugs last year, including more than 300% year-over-year sales growth from likely future blockbuster prostate cancer treatment Zytiga. This wasn’t enough to ward off falling sales from patent expirations. Growth slipped from 8.8% in 2011 to just 4% last year, and while the future’s bright for J&J’s pharmaceutical business with potential future blockbusters such as diabetes-fighting Invokana, this segment’s diversity of drugs and therapies dilute the effect of up-and-coming drug candidates on overall growth.

This is a problem that affects Big Pharma companies across the sector, but major firms in pharmaceuticals and biotech have managed to grow significantly while concentrating on smaller, more focused drug portfolios. Consider Biogen Idec Inc. (NASDAQ:BIIB): The firm’s considerable focus on multiple sclerosis drugs exposes it to far more risk than Johnson & Johnson (NYSE:JNJ)’s well-diversified portfolio, but it’s still a far safer pick than up-and-coming biotech firms with murky futures. That hasn’t stopped Biogen Idec Inc. (NASDAQ:BIIB) shares from soaring more than 59% over the past year, nearly double J&J’s performance.

The problem with diversity
All of this adds up to the most important reason why J&J isn’t the best bet for growth investors: This company is simply too broad and diversified to realize chart-topping growth for any long period of time.

Other leading firms in the health-care field have caught on. Pfizer Inc. (NYSE:PFE) has made some of the strongest moves to concentrate on its core recently, selling its infant nutrition business to Nestle and spinning off its former animal health business, Zoetis Inc (NYSE:ZTS), in order to unlock shareholder value. These moves not only allowed Pfizer Inc. (NYSE:PFE) to concentrate on its high-growth, boom-or-bust pharmaceutical business, but also, as a secondary effect, made the stock attractive to growth investors by focusing the company’s future around a core designed for growth.

J&J’s diversification strategy isn’t bad business sense, and it’s a boon for investors craving stability in a volatile market. The stock’s even been one of the best performers on the Dow Jones index this year, as it’s outperformed the market. Yet even on the Dow alone, fellow blue-chip health-care rival Pfizer has topped J&J’s gains, to say nothing of the many other strong pharmaceutical and biotech companies surging this year. J&J’s a great, safe stock for any portfolio to build around, but if you’re looking for the best growth in the industry and are willing to take a chance, there are riskier — and potentially more rewarding — stocks around the sector than Johnson & Johnson (NYSE:JNJ).

The article Why Buying Johnson & Johnson Stock Isn’t for Growth Investors originally appeared on Fool.com.

Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Johnson & Johnson.

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