During the October 1 episode of Mad Money, Jim Cramer discussed Amgen Inc. (NASDAQ:AMGN) while reviewing the Dow Jones Industrial Average’s third-quarter performance. He then shifted his attention to Johnson & Johnson (NYSE:JNJ), as he said:
In the end, I think the best lessons from the third quarter came from the 30 stocks in the Dow Jones Industrial Average, which finished down 2.7%… There’s Amgen, catch-up trade, plus 16%. You know what? I like J&J, which just got absolutely blasted today. I’d buy that one.
We also recently discussed JNJ’s economic moat and whether it was widening or narrowing.
Newer Medicines Are Helping Both Companies Grow
Amgen Inc. reported second-quarter revenue of approximately $10.1 billion, up 10% year-over-year. Adjusted earnings per share increased 4% to $6.29. Growth was supported by medicines including Repatha, whose sales rose 37% to $953 million, and Evenity, which increased 38% to $714 million.
On the other hand, Johnson & Johnson generated approximately $25.3 billion in quarterly sales, up 6.6%, and adjusted earnings per share of $2.90. Management raised its full-year outlook to approximately $101.1 billion in sales and $11.68 in adjusted earnings per share at the respective midpoints. Its pharmaceutical growth came from several treatment areas. Darzalex and Carvykti contributed in oncology, Tremfya in immunology, and Spravato and Caplyta in neuroscience. Medical technology operational sales increased 3.6%, adding a separate source of growth beyond prescription medicines. Nevertheless, only one of these stocks made it to our list of best healthcare stocks.
Older Products and Higher Expectations Complicate the Picture
Amgen Inc.’s newer medicines must offset substantial declines elsewhere. Prolia sales fell 32% in the second quarter, while Xgeva declined 34%, with both facing biosimilar competition. Otezla sales dropped 21%. Adjusted operating expenses increased 11%, outpacing total revenue growth, while debt outstanding totaled approximately $57.3 billion at June 30.
Johnson & Johnson faces a similar challenge with Stelara. The product reduced Innovative Medicine operational sales growth by approximately 760 basis points in the quarter. Companywide net earnings were essentially unchanged at approximately $5.53 billion, despite higher sales and adjusted earnings. Its growing treatments are making progress, but the headline sales increase does not mean every part of the portfolio is improving.
Cramer’s preference also comes at a higher valuation. Johnson & Johnson trades at approximately 23x forward earnings, compared with 17.5x for Amgen. The stock price decline he described does not make Johnson & Johnson the cheaper company in this comparison. Its premium accompanies a broader business spanning pharmaceuticals and medical devices. In November, Cramer weighed in on Amgen after Novartis trial failure.
Institutional Ownership Broadens Modestly
As per Insider Monkey, there were 66 hedge funds holding stakes in Amgen in the second quarter, up from 65. Johnson & Johnson’s count increased to 117 from 113. Short interest stood at 2.60% of Amgen’s public float and 0.98% of Johnson & Johnson’s. Both attracted additional fund holders, while Johnson & Johnson had the smaller relative short position.
Cramer sees an opportunity in Johnson & Johnson after its decline, but Amgen Inc. remains cheaper on forward earnings. Both companies have growing medicines to offset aging products. The difference is that Johnson & Johnson also offers medical-device exposure, while Amgen’s lower multiple comes with a substantial debt load and sharper declines in several established treatments.
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