Buying This Stock Today Could Set You Up for Life

Over the past few years, Eli Lilly (LLY) has been offering investors a unique combination of safety and growth. Investors generally turn to pharmaceutical stocks for their steady revenue streams — patients need their medicines during any market environment, creating this “safety.” But Lilly also has been delivering incredible growth thanks to its leadership in one particular market: the weight loss drug space.

Lilly’s weight loss drugs have helped revenue soar in the double digits as demand for the products remains high — in fact, demand at a certain point was so high it surpassed supply. Analysts predict that the market will reach nearly $100 billion by the end of the decade, suggesting that this growth story is far from over.

With this in mind, could buying Eli Lilly stock today set you up for life? Let’s find out.

The GLP-1 drug space
We’ll start by diving deeper into the Lilly story. Lilly sells a wide variety of drugs across treatment areas, from oncology to dermatology and neurology. But over the past few years, this pharma giant has taken center stage for its position in the GLP-1 drug space.

GLP-1 drugs act on hormonal pathways involved in digestion, and as a result, they help manage appetite and blood sugar levels. Lilly sells tirzepatide as Zepbound for obesity and as Mounjaro for type 2 diabetes, though either one has been used for weight control. Rival Novo Nordisk sells semaglutide as Wegovy and Ozempic, for obesity and type 2 diabetes, respectively. These drugs are sold in injectable formats. Lilly and Novo have recently won approval for oral GLP-1 drugs, too.

As mentioned, these drugs have delivered incredible revenue growth. For example, in the recent quarter, Mounjaro revenue soared in the triple digits while Zepbound jumped in the double digits. And together they generated more than $12 billion for the company.

Demand has remained high for these drugs due to their efficacy and safety profiles and their ease of use. In the coming quarters, Foundayo, Lilly’s oral weight loss drug, may significantly contribute to revenue as patients opt for an even easier-to-take option — the daily pill may be taken at any time, with or without food.

Lilly’s market leadership
Though Novo originally led the weight loss drug market, Lilly slipped into the lead about a year ago and today holds 60% share of the U.S. market and 53% of the international market.

Now, let’s consider whether this top pharma stock may set you up for life. It’s true Lilly stock has advanced quite a bit, more than 50% over the past year, and it now trades above $1,000 and close to a record high.

But this stock has room to run, particularly over the long term. It trades at 32x forward earnings estimates, down from more than 40x late last year. And the current level isn’t particularly high, given the obesity drug revenue growth opportunity now and down the road.

Lilly hasn’t announced a stock split, but I predict this may be in the cards in the near future: A split doesn’t change anything fundamental, but it brings down the per-share price, making the stock more accessible to a broader range of investors. This would make it easier for more investors to get in on the stock.

In any case, with or without a stock split, Lilly could set you up for life — but only as part of a diversified portfolio of quality stocks. It’s very unlikely that only one stock — even the highest quality player — will make you rich. But it’s much more likely that a number of fantastic stocks may do the job. Investors should progressively aim to invest in 50 quality companies and hold on for a number of years — and Eli Lilly makes a smart addition to this wealth-building portfolio.

— Adria Cimino

Source: The Motley Fool