We recently compiled a list of the 7 Best Big Company Stocks to Buy Now. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against the other big company stocks.
Mega-cap stocks—major technology companies to be precise—continued to drive a disproportionate share of the total US stock market returns. Market experts believe that from 2023 beginning to May 2024 end, only a handful of the biggest and most well-established technology companies drove ~60% of the S&P 500’s 40%+ gain.
FactSet reported that, for 2Q 2024 (with 93% of S&P 500 companies publishing actual results), ~79% of the S&P 500 companies reported positive EPS surprises. On the other hand, ~60% of S&P 500 companies reported positive revenue surprises. In 2Q 2024, semiconductor companies’ stocks were the critical drivers for the S&P 500 Index. The AI themes supported other sectors, like utilities, seeking support from higher electricity demand for AI data centers.
3Q 2024 Earnings Season – A Preview
Wall Street experts believe that estimates for 3Q 2024 have seen a decline and the magnitude of estimate cuts seems to be significantly bigger than compared to the comparable periods of the first 2 quarters of 2024. Market participants opine that total S&P 500 earnings should see an increase of 3.9% from the same period of last year on 4.7% revenue growth. These estimates have come down since the beginning of the period, as the current 3.9% growth had fallen from 6.9% at the beginning of July.
The decline in estimates stems from the risks associated with economic downside, slower disinflation, expectations for higher-for-longer rates, and increased geopolitical risks. Apart from these risks, the uncertainty around the US Presidential elections remains the most important factor responsible for the decline in estimates.
Wall Street analysts believe that uncertainty surrounding the US presidential election is expected to rise as the November vote draws closer. This can act as an additional headwind in the environment already demonstrating signs of losing momentum.
Reuters reported that populism, polarization, and an expected tight race can result in a surge in the economic policy uncertainty index (EPU). This is a news-headline-based index, which was created by economics professors Steven J. Davis, Scott R. Baker, and Nick Bloom. The rise in EPU takes place when an uncertain outlook about government policy prompts consumers to delay their spending and forces businesses to put a halt on investment and hiring.
Brandywine Global Investment Management (A Franklin Templeton Company), an investment management firm, believes that this might be happening in the current environment. The firm noted that the University of Michigan’s current economic conditions index remains below the expectations index. Notably, this is a rare occurrence, suggesting that consumers are anxious.
Amidst Worries, Investors Should Stick to Big Company Stocks
Analysts at Brandywine Global believe that this year’s election cycle, whether warranted or not, continues to impact the US consumer, which in turn, is impacting the corporate sector.
In the 2020 follow-up working paper, Davis (the co-founder of the EPU index) and his colleagues revealed that the EPU index tends to increase by ~18% in the month of November during a Presidential election. When elections come close, and there is a winning margin of less than 5%, and polarized, the EPU index can jump by ~28% in election month.
Political uncertainty can be a more powerful factor in asset prices, with investors focusing on the US Presidential elections. A JPMorgan survey revealed that investors continue to see political risk in the US and abroad as the top destabilizing metric for equities.
AI fever coupled with strong earnings has supported broader equities in 1H 2024, and gains have been concentrated in technology and growth stocks. Analysts opine that some investors are still looking for areas of the market that have underperformed, and they expect that the recent rally in tech might spread into other sectors as well. Most investors welcomed the signs of a slowdown in inflation and moderation in growth. As a result, the US Fed has hinted to cut key interest rates. With uncertainties looming, market experts believe that investors should stick to the big stocks, which have a healthy track record of delivering strong gains.
Our methodology
To select the 7 Best Big Company Stocks to Buy Now, we used the Yahoo Finance and Finviz stock screeners to filter stocks with biggest market caps from different industries. Next, we narrowed our list by selecting the big and well-established companies that were the most popular among elite hedge funds. Finally, the stocks were ranked in the ascending order of their hedge fund sentiment.
Why are we interested in 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).
An array of pharmaceutical pills with the company’s logo on the bottle.
Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 100
Eli Lilly and Company (NYSE:LLY) is a drug firm, which is focused on neuroscience, endocrinology, cancer, and immunology.
Eli Lilly and Company (NYSE:LLY) appears to be well-placed for strong growth over the medium term. The drivers include patents, economies of scale, and its strong distribution network. The company has patent-protected drugs, which carry premium pricing power. As a result, it can generate returns on invested capital over its cost of capital. Eli Lilly and Company (NYSE:LLY)’s manufacturing capabilities allow it to develop products efficiently and at scale, which should help in enhancing market share and profitability.
While Wall Street believes that the potential of Mounjaro (diabetes) and Zepbound (obesity) should support the company, there are opportunities in heart disease, obstructive sleep apnea, and liver disease that are quite undervalued.
Bank of America Corporation (NYSE:BAC) believes that the recent addition of label expansions for tirzepatide in weight loss should help the company surpass $60 billion in the top line by 2030. This implies a strong increase from $15 billion in 2024. Eli Lilly and Company (NYSE:LLY)’s strong leadership in weight loss is expected to drive industry-leading growth given its approved drugs and well-positioned next-gen drugs that remain in the pipeline.
In 2Q 2024, Eli Lilly and Company (NYSE:LLY)’s revenue went up by 36% as a result of Mounjaro, Zepbound, and Verzenio. When $579.0 million of revenue from the sale of rights for Baqsimi in 2Q 2023 was excluded, revenue in 2Q 2024 saw an increase of 46%. The company’s 2024 full-year revenue guidance has been raised by $3 billion to between $45.4 billion – $46.6 billion, primarily because of the strong performance of Mounjaro and Zepbound, and its non-incretin medicines. The company has increased its reported EPS guidance by $2.05 to the range of $15.10 – $15.60.
Analysts at Berenberg Bank upped their target price on the shares of Eli Lilly and Company (NYSE:LLY) from $1,000.00 to $1,050.00, giving it a “Buy” rating on 14th August. 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 7th on our list of the best big company stocks to buy. While we acknowledge the potential of LLY as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than LLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.