Is Johnson & Johnson a Buy Now?

On July 17, Johnson & Johnson (NYSE: JNJ) announced second-quarter results that gave investors a lot to look forward to. Integration of newly acquired medical technology plus upcoming expansions of patent-protected medicines will help push the healthcare conglomerate's needle forward for years to come.

Johnson & Johnson is made of many pieces that aren't moving in the same direction. Remicade, Imbruvica, and Zytiga are three blockbuster drugs in the company's pharmaceutical lineup that are losing ground to new competition.

Is Johnson & Johnson still a good dividend stock to buy? Let's weigh its strengths and opportunities against some challenges it faces to find out.

Reasons to buy Johnson & Johnson now

In 2023, the company spun off the consumer goods segment that housed the brands most people associate with the century-old company. Now that Johnson & Johnson has streamlined itself to sales of pharmaceuticals and medical technology, its growth rate could shift into a higher gear.

Second-quarter results suggest a faster-than-usual growth rate in the years ahead. U.S. pharmaceutical sales rose 8.9% year over year to $8.5 billion, driven by Carvykti, a blood cancer treatment that earned approval in 2022, and Erleada, a prostate cancer treatment that launched in 2018.

In the first half of 2024, Erleada sales rose 28%, and Carvykti sales surged 82% higher. These aren't the only drugs pushing J&J's total revenue higher. Tecvayli, a multiple myeloma treatment launched in 2022, got a boost last year from clinical trial results that show it helped 45% of difficult-to-treat multiple myeloma patients achieve complete remission.

So far in 2024, J&J has submitted applications to regulators in the U.S. or the European Union (E.U.) that could lead to expansions or initial approvals of six different drugs. The company expects to submit applications for four more by the end of the year.

Medical technology sales are up by 3.3% in the first half of 2024 or 5.4% at constant-currency rates. Management recently reduced earnings guidance for 2024 to account for recent acquisitions including Shockwave, the only manufacturer of intravenous lithotripsy devices approved to soften calcified blood vessels.

In April, J&J raised its dividend payout for the 62nd consecutive year. At recent prices, the healthcare conglomerate offers a 3.2% yield, which is more than twice what you'd receive from the average stock in the benchmark S&P 500 index.

Reasons to remain cautious

Two of J&J's large revenue streams, Zytiga and Remicade, lost patent-protected market exclusivity, and sales are dropping. Imbruvica still has exclusivity but is losing ground to competing therapies.

Calquence from AstraZeneca and Brukinsa from BeiGene work along the same lines as Imbruvica. Clinical trial results suggest these competing therapies are as good or better than J&J's drug. This means the annualized $3 billion in revenue it generated in the second quarter could quickly evaporate.

Combined sales from Imbruvica, Zytiga, and Remicade made up about 5.8% of total revenue in the second quarter. Their continued demise will make growth extra challenging.

At recent prices, you can scoop up J&J shares for about 15 times management's recently reduced midpoint of earnings expectations for 2024. That's a fair price to pay for a business that's growing by a mid-single-digit percentage, but it doesn't leave a lot of room for error. If the market begins to assume J&J's bottom line will stagnate, investors who buy at recent prices could suffer a loss.

A buy now

Given its decades-long track record and the constantly rising nature of medical expenses, continued growth from J&J is a very reasonable expectation. Potential new blockbusters emerging from its development pipeline position the company for at least another decade of reliable growth.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends AstraZeneca Plc and Johnson & Johnson. The Motley Fool has a disclosure policy .