In the three and a half months since the start of the year, investors have already seen some volatility. Geopolitical tensions, economic issues and interest rate hikes in the US have contributed to the market’s rather lackluster performance since January. Indeed, all three major US stock indices are down at the time of this writing.
But none of these issues justify staying away from the stock market. Despite short-term headwinds, stocks of strong companies will pull through and continue to reward shareholders for many years to come. On that note, let’s look at two great stocks that are worth buying and holding forever: Intuitive surgery ( ISRG -1.93% ) and Johnson & Johnson (JNJ -0.42% ).
1. Intuitive surgery
Intuitive Surgical is a medical device specialist best known for the da Vinci System, a robotic surgical system that allows doctors to perform minimally invasive surgeries. There are a host of reasons why Intuitive Surgical has a bright future.
First, the health sector is arguably on an upward trajectory. Long-term aging trends will make the services companies in this sector provide even more invaluable over the next decade. By 2060, approximately 25% of the US population will be adults aged 65 and over. In 2019, this demographic group represented only 16% of the American population. The consumption of health services tends to increase with age.
Second, Intuitive Surgical is an undisputed leader in the robot-assisted surgery (RAS) market. The company owned nearly 80% of the space’s share in 2020.
Minimally invasive surgeries confer health benefits to patients, including less bleeding, shorter hospital stays, and faster recovery times. This is why the RAS market will continue to grow, and Intuitive Surgical is well positioned to take advantage of this despite increased competition from other medical device giants such as Medtronic.
One of the main reasons that Intuitive Surgical can stay on top of this market for many years to come is that it has a strong competitive advantage. Healthcare facilities must spend between half a million dollars and $2.5 million to acquire a da Vinci system. It also takes time to train medical staff on the machine. After spending all those resources on the da Vinci RAS system, switching to a competitor’s system would be an expensive proposition.
Moreover, the development of these machines is a complicated affair, not to mention the myriad of regulatory hurdles to jump through. These barriers to entry ensure that newcomers have some serious catching up to do, and that’s why Intuitive Surgical will continue to dominate. The healthcare company has largely outperformed the market over the past two decades. Expect this trend to continue for many years to come.
2. Johnson & Johnson
As one of the world’s largest pharmaceutical companies, Johnson & Johnson will also benefit from the aging of the world’s population, as consumption of prescription drugs increases with age. The company has a robust drug portfolio comprising several flagship products. Some of the group’s top-selling drugs include the cancer drugs Darzalex and Erleada as well as the immunosuppressants Stelara and Tremfya.
Last year, Tremfya’s sales rose 57.9% to $2.1 billion, while Stelara’s revenue rose 18.5% to $9.1 billion. Meanwhile, Darzalex recorded sales of $6.02 billion, 43.8% more than a year ago, and Erleada’s sales of $1.3 billion soared 70%. Johnson & Johnson’s total sales for 2021 increased 13.6% to $93.8 billion.
The company also has a rich pipeline with dozens of clinical programs. Investors can expect label expansions and new products to bolster the company’s lineup each year. Besides its pharmaceutical segments, Johnson & Johnson operates two other divisions: medical devices and consumer healthcare. However, the company is currently transforming its consumer health units – which house famous and popular brands such as Neutrogena, Tylenol, Aveeno and others – into a standalone entity. The transaction is expected to be finalized by the end of 2022.
Once this is done, Johnson & Johnson will focus more on its pharmaceutical and medical device businesses – which typically see faster revenue growth rates than its consumer healthcare units – and the company will reduce its exposure to hundreds of lawsuits related to some of its consumer health products.
In my opinion, this separation will do wonders for the company and its shareholders and will be one more reason to add shares of the pharmaceutical giant to your portfolio. Last but not least, Johnson & Johnson is a dividend king, having increased its payouts for 59 consecutive years. The company is currently offering a yield of 2.35%, well above average S&P500 yield of 1.37%.
A strong position in an up-and-coming industry, a robust business, and an excellent dividend history make Johnson & Johnson a strong fit in your portfolio for decades.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.