Forget Eli Lilly: Why Johnson & Johnson could be the next trillion-dollar pharma stock

While Eli Lilly & Co (NYSE: LLY) has captured the spotlight in 2024 due to the soaring demand for its weight-loss drug, investors may want to turn their attention to another pharmaceutical giant: Johnson & Johnson (NYSE: JNJ). 

With its undervalued stock, robust pipeline, and industry-leading sales, Johnson & Johnson is poised to be a strong contender for joining the exclusive trillion-dollar club over the next decade.

Eli Lilly has become a favorite among investors, driven by its dominance in the obesity market—a sector expected to grow at a compound annual growth rate (CAGR) of 43.73% over the next ten years. 

However, with Eli Lilly's stock now trading at a lofty price-to-earnings (P/E) ratio of over 40, its valuation may no longer be attractive for those seeking new opportunities. 

Investors should consider the potential of other pharmaceutical stocks that offer strong fundamentals without the inflated price tag.

One such stock is Johnson & Johnson, a pharmaceutical titan that has outperformed its competitors in 2023. 

Johnson & Johnson is beating its rivals

Despite not receiving as much attention as some of its peers, Johnson & Johnson led the industry with $85 billion in sales last year, surpassing its closest rival, Roche, by a remarkable 30%. 

This strong performance underscores the company’s ability to maintain its leadership position in the pharmaceutical sector.

A key factor driving Johnson & Johnson’s success is its valuable drug pipeline, which is considered one of the most robust in the industry. 

This pipeline helps mitigate concerns about the company's upcoming patent expirations on key products, ensuring a steady stream of future revenue. 

Additionally, Johnson & Johnson offers a healthy dividend yield of 3.07%, providing investors with a reliable income stream amid growing fears of an economic slowdown.

JNJ stock is trading at a discount

What makes Johnson & Johnson particularly attractive right now is its valuation. 

The stock is currently trading at historically low multiples, including its forward price-to-earnings, price-to-free cash flow, and enterprise value-to-EBITDA ratios. 

This undervaluation presents a compelling opportunity for long-term investors who are looking for a strong-value stock.

Although Johnson & Johnson's market cap is just under $400 billion and its expected annual growth is in the single digits, the company’s strong fundamentals position it as a potential candidate for the trillion-dollar club in the coming decade. 

While it may not offer the quick profits that some investors seek, Johnson & Johnson represents a solid investment for those who prioritize stability and long-term growth.

Wall Street analysts also share a favorable outlook on Johnson & Johnson. The stock is currently rated “overweight,” and Cantor Fitzgerald analysts have set a price target of $215—a Street high—which suggests a potential upside of over 30% from its current levels.