Forget Johnson & Johnson: Another Healthcare Giant Is a Much Better Bet for Growth

Johnson & Johnson (JNJ 1.84%) is one of the world’s leading healthcare companies. Last year, it spun off its consumer healthcare business to focus on growing other parts of its business, including innovative medicines and medical devices. And over the years, the company expects to grow at a rate of 5% to 7%.

But Johnson & Johnson still faces uncertainty over the talc lawsuits, which could strain its cash flow. The company also faces the imminent loss of exclusivity on one of its best-selling drugs, Stelara. The company faces a number of headwinds that could impact its ability to generate significant growth despite its optimism.

Instead of investing in Johnson & Johnson, which is a somewhat risky investment due to ongoing legal battles, healthcare investors looking for growth have a more promising opportunity in Abbott Laboratories (Approx 3.97%).

Why Abbott Laboratories May Be an Underrated Growth Stock

Abbott Laboratories has a more diversified business than Johnson & Johnson, which means it has more ways to grow its operations. It generates revenue from multiple segments, including nutrition, diagnostics, established pharmaceuticals, and medical devices. In the first six months of the year, the company increased sales by more than 3% to $20.3 billion. Although its diagnostics business took a hit, with sales down just under 12% (due to a decline in COVID-19 test sales), other segments performed well, with medical device revenue up just over 12%. By comparison, Johnson & Johnson also generated a similar 3% increase in the first half of the year, with sales totaling $43.8 billion.

While Abbott Laboratories is growing at a rate comparable to Johnson & Johnson, I am more optimistic about its long-term growth for several reasons.

First, it’s not as deeply rooted in legal troubles. While Abbott Laboratories has legal troubles, particularly with its infant products, they aren’t as overwhelming as Johnson & Johnson’s concerns, which include tens of thousands of lawsuits. Expensive legal bills can affect the company’s cash flow and its ability to invest in growth opportunities.

Second, Abbott Laboratories has achieved impressive results in the medical devices segment, and there is still much opportunity for rapid growth in this segment.

Medical device revenues accounted for 45% of Abbott Laboratories’ revenues in the first six months of the year (compared to 36% for Johnson & Johnson), making it the company’s fastest-growing business unit. Abbott Laboratories is also a big name in diabetes care, with its FreeStyle Libre continuous glucose monitoring (CGM) devices among the best-selling on the market. The company’s diabetes care products generated $3.2 billion in revenue in the first half of the year, up nearly 18% from the same period last year.

There could still be a lot more growth. In June, the U.S. Food and Drug Administration approved two new CGMs that won’t require a prescription. CGMs are typically used by diabetics with high blood sugar who take insulin. But the new Libre Rio system is designed for diabetics who don’t require insulin injections and want to control their glucose levels. Lingo is another device for people who simply want to improve their health and well-being. It will provide users with personalized insights and coaching.

By expanding CGM’s reach beyond diabetics who need insulin, Abbott has the potential to accelerate its growth in medical devices and ultimately achieve better overall growth rates in the future. Researchers at Mordor Intelligence estimate that the CGM market will nearly double from $11.6 billion in 2024 to $21.3 billion by 2029, with Abbott Laboratories expected to be a key player.

Abbott Laboratories is generally a better option for growth-oriented investors

For growth investors looking to maximize their potential gains, Abbott Laboratories stock is a better buy than Johnson & Johnson. The company faces less risk going forward and, with a solid medical device business, especially in diabetes care, has the potential to outperform over the long term.