The health care sector has shown positive growth in the recent past and looking ahead in the future with the large aging population, a good amount of resource allocation is warranted in this sector. Johnson & Johnson (NYSE:JNJ) is one of the world's most diverse health care firms, which I feel helps them. The company also has good growth potential as their entire spectrum of products should benefit from the growing percentage of the aging population.
Due to world's aging population, the healthcare market is growing. The global healthcare services market is estimated to reach $3 trillion by 2015. By 2030, there will be more people in the world over 65 than under 5 years. This will drive demand for healthcare business because older people require more medical care than youths. In the U.S., the proportion of the population that is over the age of 65 is expected to increase from 12.4% in 2000 to 19% in 2030. The proportion of the population over 85 years, which is the group most likely to need health and long-term care services, will increase from 1.5% in 2000 to 2.6% in 2030.
Johnson & Johnson has three distinct business segments. These include consumer healthcare, pharmaceutical, and medical devices and diagnostics (MD&D). For the fiscal year 2013, the company generated 39.4% and 39.9% of its total revenue from pharmaceutical and MD&D segments, respectively. Consumer segment accounted for 20.6% of total revenue.
Johnson & Johnson are probably best known for their consumer segment. This segment includes a broad range of products used in baby care, skin care, oral care, wound care and women's healthcare fields. They also have a lot of over-the-counter pharmaceutical products. In 2013, sales of the consumer segment increased only 1.7% versus the prior year. Revenue growth of this segment will remain low in the future because the segment is facing stiff competition due to the large market and overall product simplicity. Also, cheap alternatives of many products of this segment are available to the consumer. The consumer segment is facing more competition in the U.S. than international market because generics are more common in the U.S. than in international market. Generic brands will continue to grow substantially faster in the future, so I expect that year-over-year growth of the consumer segment will be less than 2% in 2014.
The pharmaceutical segment includes products in the therapeutic areas such as anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. These products are distributed directly to retailers, wholesalers and health care professionals for prescription use by the general public. Worldwide pharmaceutical sales of $28.1 billion for the full-year 2013 represented an increase of 10.9% versus the prior year.
Competition is low in the pharmaceutical segment than the consumer segment. It is difficult for competitors to enter the pharmaceuticals market because it requires specialized knowledge to succeed. Johnson & Johnson has the experience and resources to hire the best researchers in order to continue to develop new products. This segment faces the frequent threat of patent expiration to more generic versions of the drug. The most successful product in this segment has been Remicade, a remedy for arthritis. This segment will be an important segment for growth, as the company continues to release new and innovative drugs.
Medical Devices and Diagnostics
The MD&D segment includes a range of products distributed to wholesalers, hospitals and retailers, used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Distribution to these healthcare professional markets is done both directly and through surgical supply, and other dealers. Worldwide Medical Devices and Diagnostics sales of $28.5 billion for the full-year 2013 represented an increase of 3.9% versus the prior year.
This area is the best for Johnson and Johnson. There is a lot of growth in the medical devices area. I think the company's strong position in this market makes them a good company. There is a less generic competition in this segment because many products of the MD&D segment are specialized pieces of technology that are difficult to replicate without patent infringement. Products of this segment have great demand in the U.S., as they can afford to pay for more expensive and superior products. the MD&D segment generates more than 7.5% of its sales from diabetes care. Diabetes also represents great growth opportunity for the company, as the world market for diabetes medications is expected to reach $55.3 billion in 2017.
Another good reason to invest in the stock is because quarterly dividends increased from $0.49/stock in 2009 to $0.66/stock in 2013, suggesting that Johnson & Johnson will have a brighter future. The company has consistently returned value to its shareholders through cash dividends and share buybacks. With $17 billion in cash, it has the ability to pay dividends for at least three years.
Johnson & Johnson is well positioned within the global health care market. The company is committed to the future research and development of new products. the pharmaceutical and medical devices and diagnostics segments of the company will show a significant revenue growth in the future. With huge cash balance, it has the ability to pay dividends for many years. In my opinion, Johnson & Johnson is an attractive investment opportunity for investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.