2017 Bull-Bear Case for Health Care: J&J, Merck, Pfizer, UnitedHealth

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Major Dow Jones Industrial Average companies in the health care sector saw a relatively strong 2016, with most posting a solid gain on the year. One of these stocks was actually a top Dow performer, while the rest settled near the middle of the pack. As the Trump administration is taking shape, the general sentiment in the health care sector is that the new president will be pro-business.

Along with the changing of the guard for the U.S. head of state, many investors have rotated their portfolios as well. Analysts have even chimed in saying that investors are looking at potentially high-growth industries under Trump, such as financials, industrials and namely health care.

24/7 Wall St. has evaluated a bullish and bearish case for each Dow stock in 2017. In this report we have included the cases for the health care components of the Dow: Johnson & Johnson (NYSE: JNJ), Merck & Co. Inc. (NYSE: MRK), Pfizer Inc. (NYSE: PFE) and UnitedHealth Group Inc. (NYSE: UNH). A couple of these companies even made the 2017 Dogs of the Dow.

It is worth noting that there is inherent risk going forward with Johnson & Johnson, Merck and Pfizer, should there be any failed clinical trials or U.S. Food and Drug Administration (FDA) setbacks. Jefferies also explained that there could be more risk with some of the U.S. companies that have been supported by dividend yields, such as Johnson & Johnson, Merck and Pfizer, which could suffer if the Federal Reserve raises rates faster and further than expected.

The Dow closed out 2016 at 19,762.60 on December 30. It may not have hit the elusive 20,000 mark, but it ended the year with a gain of 13.4% from the 17,425.03 close on the last trading day of 2015. This was quite close to the 24/7 Wall St. forecast of 19,700, but we still have a case that can be made for up to Dow 22,000 late in 2017. The S&P 500 closed the year at 2,238.83, up 9.5% from the 2,043.94 close of 2015. The Nasdaq ended at 5,383.12, for a gain of just 7.5% from the 5,007.41 close at the end of 2015.

Johnson & Johnson

Johnson & Johnson generated roughly a 15% return after closing 2016 at $115.21. With a year-end consensus analyst price target of $125.16, an 8.6% implied upside along with a dividend yield of 2.8% would imply an expected total return of 11.4% for 2017, if the analysts are proven to be right.

Johnson & Johnson’s strong performance through 2016 has reflected the success of its new product launches and the strength of its overall core businesses, driven by strong growth in the pharmaceuticals business. With a number of regulatory approvals, several new drug application submissions and new breakthrough therapy designations from the FDA, this major pharma is increasingly confident in its pipeline expectation of filing 10 new pharmaceutical products between 2015 and 2019, each with revenue potential over $1 billion.

In a recent report, Janssen Biotech, a unit of Johnson & Johnson, announced that the FDA has approved Stelara for the treatment of moderately to severely active Crohn’s disease in adults. This is just one of the drugs coming out that will strengthen Johnson & Johnson’s pipeline.

This company is sort of like Old Faithful in that it just keeps spewing money into the air for investors each year. Perhaps there is something to be said for sticking with a mantra of being in health care products, pharmaceuticals and in consumer products at the same time. The company has a 54 consecutive years of dividend hikes and doesn’t look to be stopping anytime soon.

Johnson & Johnson shares have a 52-week trading range of $94.28 to $126.07, and the market cap is $315 billion. The dividend yield is 2.8%.