Warren Buffett Thinks Investors Are "Gambling" Right Now. Here are 2 Stocks That Should Be Safe Bets.

Warren Buffett Thinks Investors Are "Gambling" Right Now. Here are 2 Stocks That Should Be Safe Bets.

James Halley, The Motley Fool

Fri, August 28, 2026 at 5:20 PM GMT+3 7 min read

There are concerns that we may be in an economic bubble, with stocks as expensive as they were just before the dot-com bubble burst. Warren Buffett criticized what he sees as too much short-term speculation, saying at the May meeting of Berkshire Hathaway that markets have become "a church with a casino attached."

Long-term investors seek out stocks that can generate consistent cash flows regardless of what's going on with the economy. Two that stand out today in the healthcare sector are Johnson & Johnson (NYSE: JNJ) and Merck (NYSE: MRK). Both are built to retain capital, maintain pricing power, and sustain shareholder returns across bull and bear cycles alike.

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Merck was founded more than 130 years ago and has grown with an emphasis on research and development (R&D), smart acquisitions, and disciplined financial management. Johnson & Johnson, founded 140 years ago, has a similarly long tradition of doing all the right things. Why I like each of these stocks:

The structural inelasticity of healthcare demand

The primary engine behind the defensive nature of both Merck and Johnson & Johnson is the fundamental inelasticity of pharmaceutical and medical demand. Unlike consumer discretionary products or technology services, life-saving therapies, oncology treatments, and surgical devices cannot be deferred during a recession. Patients, hospital networks, and third-party payers maintain baseline consumption of critical medical interventions even as broader industrial output contracts.

For Merck, this inelasticity centers on its world-class oncology portfolio. The company reported $16.6 billion in sales in the second quarter, up 5% year over year, led by cancer drug Keytruda, which brought in $8.4 billion, up 5% over the same period a year ago.

The company also has an extensive franchise in human vaccines and animal health products. Cancer treatments and pediatric immunizations are non-negotiable medical expenditures, providing Merck with remarkable revenue visibility regardless of fluctuations in gross domestic product (GDP).

Merck's stock recently rose 10% after it announced positive news about an mRNA-based vaccine it partnered on with Moderna. A 1,137-volunteer study showed the vaccine reduced the odds that melanoma, one of the deadliest forms of skin cancer, would return after it had been surgically removed.

Even after the 2023 spinoff of its Kenvue consumer health unit, Johnson & Johnson has significant diversity across its innovative medicines and medtech segments. This structural focus exposes the company to high-margin prescription therapies and essential medical procedures, such as cardiovascular interventions and orthopedic surgeries, which remain non-discretionary.

In the second quarter, the company reported revenue of $25.3 billion, up 6.6% year over year, and had three therapies with $1 billion or more in sales, led by the multiple myeloma drug Darzalex, which reported $4.2 billion in sales, up 18.9% year over year.

Both companies have solid dividend histories

Merck raised its quarterly dividend by 5% this year to $0.85, the 26th consecutive year it has increased its dividend. The yield is an above-average 2.48%.

Johnson & Johnson is a Dividend King, one of the select group of stocks had has increased their dividends for 50 or more consecutive years. The company raised its dividend by 3% this year, the 64th consecutive year it has increased its dividend, and the yield is 1.94%.

They spend heavily on R&D, and it pays off

A primary challenge for any pharmaceutical company is the expiration of key patents. Merck and Johnson & Johnson excel at rotating capital into next-generation clinical assets to preserve top-line trajectory. Over six months, Johnson & Johnson has spent $7.1 billion on R&D, while Merck spent $9.7 billion on R&D in Q2 alone.

Merck has faced scrutiny regarding the upcoming end-of-decade patent expirations for Keytruda (pembrolizumab). However, Merck is developing subcutaneous formulations of pembrolizumab to extend franchise durability while actively expanding its non-oncology revenue. Its commercialization of Winrevair for pulmonary arterial hypertension, alongside promising phase 3 developments in cardiometabolic, antibody-drug conjugate (ADC), and vaccine candidates, highlights a multi-tiered pipeline capable of driving growth well beyond current blockbusters.

The company had a huge win recently, with Lipfendra becoming the first PCSK9 inhibitor approved by the Food and Drug Administration (FDA) in pill form to treat high low-density lipoprotein LDL levels. The drug could replace many statins and is seen as a blockbuster.

Johnson & Johnson benefits from a broader enterprise diversification across its two primary divisions. Its innovative medicines segment continues to deliver robust volume growth through established therapies in immunology and oncology, alongside next-generation assets such as Tremfya, Rybrevant, and Tecvayli.

On July 30, the company received FDA approval for a new indication for Darzalex Faspro as part of a triple combination therapy with Zenbexus and dexamethasone from Bristol Myers Squibb for adults with relapsed/refractory multiple myeloma. In March, Johnson & Johnson received two key approvals: Icotyde in pill form to treat plaque psoriasis and Tecvayli, combined with Darzalex Faspro, for adults with refractory multiple myeloma.

The company's medtech division provides a high-margin revenue engine tied to long-term demographic trends in areas such as surgical automation, electrophysiology, and vision care. In the past couple of months, the company received key regulatory approvals for two robotic surgery systems. Its Ottava robotic surgical system was granted FDA approval in July, marking the company's debut in soft-tissue robotic surgery, including general surgical procedures in the upper abdomen, including gastric bypass, gastrectomy, appendectomy, and hiatal hernia repair.

On Aug. 17, its Monarch Quest 3 bronchoscopy system was cleared by the FDA, a software and navigation system update with artificial intelligence (AI)-driven spatial orientation tools and 3D compass overlays to improve lung lesion procedures.

Both good choices

The markets know value, and both stocks have done well this year. Merck's shares are up more than 28%, and Johnson & Johnson's are up more than 30% so far in 2026.

There's no such thing as being too big to fail, but both companies' size and ability to turn capital into new innovations provide diversity to their revenue streams. Their above-average dividends, in addition to showcasing fiscal health, attract long-term investors seeking dependable income.

Should you buy stock in Johnson & Johnson right now?

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James Halley has positions in Johnson & Johnson and Bristol Myers Squibb. The Motley Fool has positions in and recommends Berkshire Hathaway, Bristol Myers Squibb, and Merck. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Warren Buffett Thinks Investors Are "Gambling" Right Now. Here are 2 Stocks That Should Be Safe Bets. was originally published by The Motley Fool