Johnson & Johnson's days of being a top healthcare stock could be long gone.
Johnson & Johnson (JNJ -0.21%) is one of the leading and most recognizable names in healthcare. It generates billions in revenue and profit every year and its products are used all over the world. It's a truly global organization that has achieved considerable success over the years.
It also pays a dividend that it has increased for decades, giving investors plenty of incentive to buy and hold the stock, simply collecting that recurring payout along the way.
In the past 10 years, the stock's total returns (which include dividends) have come in around 125%, creating significant value for shareholders. It has been a great investment, particularly for risk-averse investors who wanted a stock they could just buy and forget about.
Here's why it isn't a great buy anymore.
Talc lawsuits pose a serious threat to the business
For decades, Johnson & Johnson has arguably been a beloved name in healthcare. Many consumers associate the brand with quality and safety. However, that may not necessarily be the case anymore. Of late, the healthcare company has been battling countless lawsuits, particularly with its talc-based products, which plaintiffs allege were contaminated with materials that led them to develop cancer.
These are serious claims and J&J is fighting against them vigorously. This isn't just about protecting its image, however; it's also about the significant amount of money that is at stake. Johnson & Johnson has gone to considerable lengths to try and put the issue to rest. It tried to use a subsidiary, LTL Management, to assume responsibility for all the lawsuits and then bankrupt it, thus limiting its overall liability. Judges rejected this attempt -- twice.
If the plan had been approved, Johnson & Johnson would have put $8.9 billion into LTL to fund a settlement. If it's willing to settle on that amount, you can be sure that it's worried its total liability is likely to otherwise be far higher than that. With tens of thousands of lawsuits outstanding just related to talc, it becomes nearly impossible to estimate the total liability the business faces. One way the company has been able to effectively offload some liability is through the spinoff of its consumer health business into Kenvue (KVUE -1.44%), which will be responsible for any talc lawsuits that arise outside of the U.S. and Canada.
Given the uncertainty regarding the talc lawsuits, investors should tread very carefully with Johnson & Johnson's stock. It's tempting to assume that since it makes billions, it can absorb these legal costs, but these legal bills keep on mounting. It has also faced litigation related to other products, including Risperdal, opioids, and vagin*l mesh implants.
The company's financials may not be as strong in the future
Last year, Johnson & Johnson reported $13.3 billion in profit, with revenue totaling $85.2 billion. But what the future holds is a question mark because the company is facing the loss of exclusivity for top-selling psoriasis medication Stelara, which could face competition in the U.S. as early as next year. In 2023, Stelara generated $10.9 billion in revenue.
Between 2025 and 2030, Johnson & Johnson projects that it will generate annual growth between 5% and 7%, hoping the development of new drugs to will help offset the loss of exclusivity for Stelara. But the relatively modest single-digit expansion rate may not be sufficient for the company to both be an attractive growth investment and be financially strong enough to absorb the possible legal battles ahead.
While Johnson & Johnson's recent results are still impressive, the company's future has never been cloudier than it is now. Rising legal costs could burden the business and potentially impact the safety of its dividend, especially as it focuses more on growth and creating innovative medicines.
Johnson & Johnson isn't the safe stock it used to be
In the past, Johnson & Johnson may have been a good healthcare stock to comfortably hold in your portfolio. But that's no longer the case. Until there is a resolution to the talc-related issues, the stock is simply too big of a risk these days. The legal bills pose a threat to the company's dividend and its long-term growth objectives. And with many other dividend stocks and top healthcare companies to invest in, there's just not a compelling reason to put money into J&J when there are much better and safer options out there.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
FAQs
The Dangers of Johnson and Johnson Baby Products
While talc itself is simply a mineral found in the ground, talc mines are oftentimes located near asbestos within the Earth, leading to cross-contamination of both of these minerals. When tested, samples of the talc mineral usually contain the asbestos mineral as well.
Why should you not invest in Johnson & Johnson? ›
Key Points. Johnson & Johnson is one of the top healthcare companies in the world, with a market cap of nearly $400 billion. The company, however, faces an uncertain future because of its unsettled talc lawsuits. The litigation could threaten its dividend and long-term growth prospects.
Is Johnson & Johnson a good stock to buy now? ›
Based on analyst ratings, Johnson & Johnson's 12-month average price target is $175.77. Johnson & Johnson has 20.77% upside potential, based on the analysts' average price target. Johnson & Johnson has a consensus rating of Moderate Buy which is based on 8 buy ratings, 7 hold ratings and 0 sell ratings.
What is the best stock to own with the Motley Fool? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Block, Etsy, Meta Platforms, Microsoft, Netflix, Nvidia, Salesforce, Shopify, Tesla, and Vanguard Index Funds - Vanguard Small-Cap Growth ETF.
How much will each person get from Johnson and Johnson settlement in 2024? ›
January 23, 2024 Update:
J&J has offered $6.9 billion to settle more than 50,000 ovarian cancer claims. So the average talc settlement under this proposal would be around $130,000.
Has anyone received a settlement from Johnson & Johnson? ›
Johnson & Johnson has agreed to pay $700 million in a nationwide settlement resolving allegations that it misled customers about the safety of its talcum-based powder products in its marketing.
Which is better to invest in Pfizer or Johnson and Johnson? ›
PFE's forward EV/Sales multiple of 2.94 is lower than JNJ's 4.35. PFE's forward EV/EBITDA multiple of 8.78x is lower than JNJ's 12.07x. PFE's trailing-12-month levered FCF margin of 8.29% is lower than JNJ's 23.23%. In addition, PFE's trailing-12-month asset turnover ratio of 0.33x is lower than JNJ's 0.48x.
Should I sell my Johnson & Johnson stock? ›
Is Johnson & Johnson stock a Buy, Sell or Hold? Johnson & Johnson stock has received a consensus rating of buy. The average rating score is Aaa and is based on 47 buy ratings, 32 hold ratings, and 1 sell ratings.
Is Johnson and Johnson financially healthy? ›
J&J's financial results are considered a bellwether for the broader health sector. The company posted $21.38 billion in total sales for the first three months of 2024, up more than 2% from the same quarter in 2023. The pharmaceutical giant booked net income of $5.35 billion, or $2.20 per share during the quarter.
Where will JNJ stock be in 5 years? ›
Johnson & Johnson stock price stood at $147.80
According to the latest long-term forecast, Johnson & Johnson price will hit $150 by the end of 2024 and then $200 by the middle of 2028. Johnson & Johnson will rise to $250 within the year of 2029 and $300 in 2032.
By choosing Procter & Gamble, you get a slightly higher dividend and a more stable moat. Johnson & Johnson's dividend is nothing to sneeze at, either, and if the company has a few big hits from the pharmaceutical division, it could prove to be the outperformer of the two.
Is JNJ going to split up? ›
The split allows J&J's executives to focus more on developing innovations and expanding the businesses of medical technologies and pharmaceuticals. “We need to be a top-tier medical tech company and a top-tier pharmaceutical company, first and foremost,” Chief Financial Officer Joseph Wolk said.
What do billionaires use to buy stocks? ›
Family offices are personal wealth management firms for billionaires. Prime brokerages allow the ultra-wealthy to borrow securities and cash for investing. Private placements give billionaires access to shares of private companies.
What are the 10 best stocks to buy right now? ›
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Tangent. In 2018, a Missouri court ordered Johnson & Johnson to pay nearly $4.7 billion to 22 women claiming asbestos in the company's talcum powder was linked to their cases of ovarian cancer.
Are Johnson and Johnson products safe to use? ›
For over 125 years, we've utilised the latest science to create safe, mild, and effective baby products and continue to do so with our 5-Step Safety & Care Commitment. This means that our products are supported by science and are recommended by healthcare professionals all around the world.
Are there any downsides to the Johnson and Johnson vaccine? ›
Side effects may include pain or swelling at the injection site, headache, fatigue, muscle aches, nausea, or fever.
Is Johnson's baby powder safe to use? ›
Does JOHNSON'S® baby powder cause cancer? No we do not cause cancer, we firmly believe that JOHNSON'S® baby powder is safe to use. Decades of safety reviews by independent researchers and scientists have shown that cosmetic talc is safe to use with no proven causal link to cancer.
