Johnson & Johnson Still Carried by Drugs

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NEW YORK  (TheStreet)) -- Despite concerns about organic growth, and what many pundits consider to be "diminishing productive balance" within its various business segments, Johnson & Johnson , whose stock is up close to 40% year to date, remains a top-notch player in Big Pharma. Just in case you were wondering.

I won't deny the fact that Johnson & Johnson's drug business continues to do most of the pulling, but I am -- nonetheless -- impressed by the meaningful improvements management has made in areas like orthopedics and medical devices.

While these improvements won't immediately threaten the market share established by Abbott Labs and Stryker , JNJ investors should be pleased with the year-over-year and sequential growth.

That said, with the stock having already secured such healthy gains, these shares, which now carry a price-to-earnings ratio that is more than twice that of Pfizer , are not cheap. However, if JNJ's recent earnings report serves as any indication, I wouldn't be in a rush to sell either.

The company delivered third-quarter revenue of $17.58 billion, which exceeded Street estimates of $17.46 billion. As has been the case for most of the year, the company's better-than-expected revenue performance, up roughly 3% year over year, was again led again by its strong drug business, which grew 11%.

Leading the way was Johnson & Johnson's best-seller Zytiga, which surged more than 70% year over year. As evident by the 30% sequential growth, it's beginning to look as if management has found a winner in Xarelto. This is JNJ's blood thinner that has begun to threaten Bristol-Myers Squibb 's top-selling alternative Eliquis.

Not to be outdone, Johnson & Johnson immunology and oncology drug, which was up 13% and have proven very effective among cancer patients, gives the company advantage over Merck and Sanofi , especially given the inroads JNJ has made in cancer, and now with type-2 diabetes drug Invokana.

Despite the fact that Invokana has been on the market only a few months, it continues to steal existing products share from both Merck and Sanofi -- but that wasn't all good news. For instance, while I'm willing to credit management for advancing Johnson & Johnson's other segments, such as cardiology and surgery, noticeable weaknesses in areas like medical devices and the consumer business still linger.

Although JNJ has posted solid growth in devices this year, more than 80% of that growth has been partly due) to Synthes, which the company acquired last year. JNJ bulls hate it whenever the "organic growth" argument is raised, since it measures a company's operational performance, while removing external factors -- such as acquisitions.