We recently compiled a list of the 10 Best Counter Cyclical and Defensive Stocks to Invest In. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against the other counter cyclical and defensive stocks to invest in.

Volatility in the U.S. equity market is edging higher heading into year-end as investors react to a string of economic and geopolitical developments. Uncertainty over the outcome of the upcoming U.S. election is one headwind that is taking a significant toll on sentiments in the equity markets. Similarly, concern over a slowing economy crumbling amid high interest rates is also forcing investors to tweak their investment portfolios.

The damage has been done with the U.S. Federal Reserve expected to initiate a string of interest rate cuts in response to deteriorating economic conditions. The economy posting its weakest growth in the labor market in years is the earliest indication that things might not be well in the world’s largest economy.

READ ALSO: 10 Undervalued Cyclical Stocks to Buy According to Analysts and 10 Best US Stocks to Buy Under $5.

While the economy did bounce back in the second quarter, depicted by the gross domestic product growing by 2.8% compared to 1.6% in the first quarter, deterioration in the labor market is a concern forcing investors into stocks that won’t fall in a recession.

The economy added the lowest amount of jobs since 2021 in August, signaling that the economy is cooling after months of blockbuster gains. For starters, the Private sector payroll grew at the weakest pace, hiring just 99,000 workers.

A less-than-anticipated nonfarm payroll report for August contributed to the growing perception that the rate of employment expansion is slowing down. The Labor Department disclosed an increase in employment of 142,000, surpassing July but falling short of the 161,000 Dow Jones predictions.

Christopher Waller, a member of the Federal Reserve’s Board of Governors, did not outline a precise amount for the Fed’s reduction in interest rates or the exact timing that should support the economy. However, he expressed a willingness to consider the need for a forceful approach to maintaining employment levels while inflation approaches the Federal Reserve’s target of 2%.

Concerns over a slowing economy should continue sending jitters in the equity markets, as JPMorgan Chase Chief Jamie Dimon insists that stagflation could come into play even with the Fed cutting to try to boost economic growth. Stagflation could spell doom to the equity markets, especially cyclical stocks, whose performance depends on the economy’s health.

According to Dimon, inflationary pressures leading to higher deficits and increased infrastructure spending should continue to put more pressure on the economy as it tries to navigate the high interest rate environment. In August, the bank chief reiterated that there was a 35% to 40% chance of the economy plunging into recession.

Amid the recession concerns, pullbacks in the equity markets are more than expected, especially in September, billed as one of the worst months for stocks. Equity market valuation has already gotten out of hand after months of rallies fueled by the artificial intelligence frenzy and expectations of more than three interest rate cuts.

For investors looking to be on the front foot amid the expected pullbacks, the best counter-cyclical and defensive stocks to invest in could provide a way out. Counter-cyclical companies tend to do good when the economy is weak and suffer when business is booming, while non-cyclical stocks, or defensive stocks, stand out partly because economic conditions do not affect their core business. The fact that such companies mainly deal in goods and services that people cannot do without means they will always outperform with deteriorating economic conditions.

Lack of strength in the employment sector, changing expectations regarding the Federal Reserve’s forthcoming actions, concerns about a severe economic downturn, the possibility of persistent inflation, and the forthcoming presidential race. These are some of the problems that investors focused on non-cyclical stocks like Warren Buffet are never worried about.

To Warren Buffett, none of this big-picture economic jargon holds any significance. The “Oracle of Omaha” is a staunch advocate for the idea that successful investing hinges on identifying a great company that can shrug off macroeconomic concerns to deliver stellar returns and shareholder value.

Whether it’s buying a company’s stock or the entire company, the Berkshire chairman and CEO insist on focusing on high-quality stocks with tremendous growth prospects regardless of the prevailing economic conditions.

Our Methodology

To make our list of the 10 best counter-cyclical and defensive stocks to invest in we scoured through Yahoo Finance and Finviz stock screeners to find 20 high-quality stocks that were the most widely held by hedge funds. Next, we shortlisted our list to 10 stocks that hedge funds are increasingly building positions in. Finally, we ranked the stocks in ascending order based on the number of hedge funds that hold stakes.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Eli Lilly and Company (NYSE:LLY)

Market Capitalization as of September 11: $810.25 Billion

Number of Hedge Fund Investors in Q2 2024: 100

Eli Lilly and Company (NYSE:LLY) fits the bill as one of the best defensive stocks to invest in as it discovers, develops, and markets human pharmaceuticals that are crucial to the survival of human beings. The company offers leading products for treating diabetes, arthritis, and ulcerative colitis, among other medical conditions.

While the stock is trading near all-time highs, the 770% rally over the past five years has come on the company enjoying tremendous success with its lead products for diabetes and weight loss, Mounjaro and Zepbound. The company’s competitive edge stems from the quality and effectiveness of its drugs, which allows it to spend less on sales and marketing to generate revenues.

For a long time, Eli Lilly and Company (NYSE:LLY) ‘s success has been largely dependent on its best-selling diabetes medication, Trulicity, for expansion. However, with the green light for Mounjaro for diabetes treatment and Zepbound for weight reduction, the company’s landscape has changed significantly.

Eli Lilly and Company (NYSE:LLY) saw its revenues increase by 36% in the second quarter, reaching a total of $11.3 billion in sales. The revenue from Trulicity amounted to $1.2 billion, which was less than a quarter of the $3.1 billion in sales achieved by Mounjaro. Lilly raised its full-year 2024 revenue guidance by $3 billion, to between $45.4 billion and $46.6 billion, affirming expected growth.

Eli Lilly and Company (NYSE:LLY)’s shares are certainly expensive while trading at a price-to-earnings multiple of 39. However, it commands a significant premium due to its leading position in the market for weight loss medications. Moreover, with the numerous diseases linked to obesity that tirzepatide can address, the potential for Eli Lilly’s stock to soar is limitless.

During Q2 2024, 100 hedge funds held stakes in Eli Lilly and Company (NYSE:LLY), totaling $16 billion. Fisher Asset Management emerged as the leading stakeholder, owning nearly 5 million shares.

Baron Funds, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:

“Shares of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”

Overall LLY ranks 2nd on our list of the best counter cyclical and defensive stocks to buy. While we acknowledge the potential of LLY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LLY, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.