Johnson & Johnson (NYSE: JNJ) is one of the top healthcare stocks in the world, with a market cap of around $390 billion. But in recent years, it hasn't exactly been known to be a top growth stock; in five years, the stock has risen by just 18%.
Even if you look at the past decade, it has risen by 76%, which averages out to a compound annual rate of 5.8%, well below the S&P 500's long-run average of 10%.
But Johnson & Johnson spun off its consumer health business last year in order to focus more on growth opportunities. Could the move accelerate its returns and be enough for this stock to reach a $1 trillion valuation by 2030?
Johnson & Johnson has been turning to acquisitions to bolster its prospects
One way for a healthcare company to grow its business is through in-house development and the launch of new products. That can take years, and there's no guarantee that clinical trials will pay off.
Currently, Johnson & Johnson has around 60 programs that are either in phase 2 or phase 3 trials. That number of programs does help improve the chances that it could have some big wins down the road. But that doesn't necessarily mean they'll be game-changing drugs.
Another way that the company can strengthen its long-term prospects is via acquisitions, and Johnson & Johnson has been pursuing deals in recent years. In late 2022, it completed the acquisition of heart-pump maker Abiomed for $16.6 billion, in a move that would enhance its medical device segment.
In November, it agreed to buy Laminar, another medical device company, paying $400 million up front plus potential milestone-related payments later on.
On the pharma side of things, the company announced plans in January to acquire Ambrx Biopharma for $2 billion. Ambrx makes antibody drug conjugates, often referred to as ADCs, which help target cancer cells to try to minimize the risk to healthy cells.
Growth could still be underwhelming
Despite the acquisitions, however, there might not be enough here for Johnson & Johnson to be the high-powered growth stock it needs to be for it to join the $1 trillion club. In December, the company announced its long-term guidance, which projected an annual growth rate between 5% and 7% from 2025 through to 2030.
Even though the company is expecting to have more than 10 assets in its innovative medicine business with peak sales potential of more than $5 billion, Johnson & Johnson isn't expecting its sales to skyrocket. A 5% annual growth rate for five years would result in sales rising by approximately 28% during that time frame. That's good growth for the business, but I'm not optimistic that will be enough to make the stock a hot buy for growth investors.
Johnson & Johnson likely won't get to $1 trillion anytime soon
By focusing more on growth, Johnson & Johnson should achieve better returns for investors in the future than it has in the past. But for it to reach a valuation of $1 trillion, the stock would need to rise by 156%.
It's not impossible, but based on its growth outlook and the acquisitions it has been making of late, it just doesn't seem probable. There's no significant catalyst for the business right now that suggests it will dramatically become a high-flying growth stock.
Dividend investors might still see a lot of value in the stock, however, for its 3% payout and the annual increases that have become customary over the years.
Should you invest $1,000 in Johnson & Johnson right now?
Before you buy stock in Johnson & Johnson, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Johnson & Johnson wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
