The healthcare sector has had a rough stretch, with the S&P 500 Health Care index (XLV) dropping about 12% over the last year, even as the broader S&P 500 ($SPX) climbed more than 15%. U.S. healthcare stocks are now trading at their steepest discount to the rest of the market in three decades. The sector’s forward price-to-earnings ratio is around 16x, well below the S&P 500’s 22x and much less than tech’s lofty 30x, which highlights just how undervalued healthcare is for the earnings offered.
AbbVie (ABBV) has climbed 17.25% year-to-date (YTD), well ahead of its sector, while Johnson & Johnson (JNJ) has returned a solid 22.04% in the same period. Both have delivered strong quarterly results; AbbVie posted $2.97 per share and Johnson & Johnson $2.77. With market values at $366.6 billion and $429.7 billion, they stand out as major players when much of the sector has struggled.
August has been tagged by Evercore as a potential turnaround month for healthcare, and AbbVie’s and Johnson & Johnson’s price-to-earnings (P/E) ratios, 17.50x and 16.51x, compare favorably to the sector average of 18.17. Could these bargains offer even more upside potential than big names like UnitedHealth (UNH) with a ratio of 18.97x, above the sector average? Let’s dig deeper.
AbbVie is a global drugmaker that develops and sells medicines across immunology, oncology, neuroscience, and aesthetics, shifting from older blockbusters like Humira to next‑generation therapies with a broader, innovation‑driven portfolio.
ABBV stock is up 5.59% over the past 52 weeks and 9.8% in the past month, showing steady momentum that has led sector peers in recent weeks.
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A strong dividend adds support, with a 3.11% yield versus the healthcare average of 1.58%, a forward payout ratio of 59.92%, and 53 straight years of increases, signaling consistent cash generation and disciplined capital returns.
Second‑quarter 2025 results were solid: adjusted EPS of $2.97, up 12.1% year over year, on net revenue of $15.423 billion, up 6.6%. Immunology remains the anchor, with Skyrizi and Rinvoq together tracking toward more than $25 billion in 2025 revenue to more than offset Humira softness, while neuroscience and oncology are adding double‑digit growth that diversifies earnings and reduces concentration risk. Guidance moved higher, with full‑year adjusted EPS now $11.88–$12.08 and revenue guided to $60.5 billion, even after accounting for R&D and milestone costs tied to business development.
Recent moves strengthen the long‑term story. The Capstan Therapeutics acquisition brings an in vivo CAR‑T platform aimed at autoimmune disease that seeks deep B‑cell depletion without lymphodepleting chemo, opening a new path beyond conventional ex vivo approaches. The planned $195 million U.S. investment to expand API manufacturing adds capacity and resilience, supports the North Chicago workforce, and aligns production with a larger pipeline, building a firmer base for growth through the decade.
Analyst views are constructive: all 29 surveyed rate the shares a consensus “Moderate Buy,” with a mean target of $215.81, about 3% above its recent price levels.
Johnson & Johnson (JNJ) is one of the largest healthcare names, with a business built around two main areas: Innovative Medicine, which covers drugs for cancer, immune and nerve disorders, and more, plus MedTech, where it develops everything from surgical tools to orthopedic solutions.
The stock has shown steady growth, climbing 7.16% in the past 12 months and another 5.67% over the last month, showing strength in a market filled with uncertainty.
It’s known for its reliable dividend, giving a forward yield of 3.58%, well above the sector average. Its 64-year streak of increases, supported by a forward payout ratio near 50% signals confidence in cash flow durability.
In the second quarter of 2025, sales hit $23.7 billion (up nearly 6%), and earnings came in at $2.29 per share (GAAP) and $2.77 (adjusted). The pipeline has added wins with IMAAVY gaining approval for gMG, TAR-200 moving to priority review, strong data for CARVYKTI in multiple myeloma, and steady progress for OTTAVA in general surgery robotics. Expectations for the year have been raised, with sales now seen up 5.4% and EPS targets set at $10.85 (GAAP) and $10.68 (adjusted), showing management’s confidence as both core businesses keep performing.
Strategically, Johnson & Johnson MedTech launched the VIRTUGUIDE AI‑powered, patient‑matched Lapidus system in the U.S. to streamline bunion surgery planning and execution, with early adopters estimating procedural time savings of at least 30 minutes, an innovation aimed at a prevalent condition affecting roughly a third of adults and a tangible example of MedTech’s software‑enabled productivity push. Separately, the company expanded its global initiative to support the nursing workforce via the J&J CareCommunity platform, targeting the projected 4.5 million nurse shortfall by 2030, which can strengthen health systems and indirectly bolster adoption and utilization across J&J’s therapeutic and procedural franchises over time.
The 25 analysts covering Johnson & Johnson rate the stock a consensus “Moderate Buy,” with the average target of $177.36, just a hair above the recent price of $175.92.
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AbbVie and Johnson & Johnson both offer what investors want right now: clear earnings momentum, durable cash returns, and tangible growth catalysts.
AbbVie’s immunology engine (Skyrizi/Rinvoq) is driving double‑digit adjusted EPS growth and a guidance raise, while fresh moves like the Capstan deal and new U.S. API capacity add runway and resilience. Johnson & Johnson pairs steady top‑line growth and a higher 2025 outlook with real product traction in Innovative Medicine and MedTech, plus software‑enabled tools like VIRTUGUIDE.
With reasonable forward multiples and reliable dividends, both names screen as smarter-value buys than UnitedHealth at this stage.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
