Just because a bunch of billionaires all own the same stock doesn't necessarily mean it's a great pick for you. On the other hand, most billionaires have become and remained billionaires for a reason. It wouldn't be wrong to at least explore one of only a handful of names this ultrarich crowd can agree is worth owning.
To this end, drugmaker Eli Lilly (LLY -0.24%) is currently one of several billionaires' favorite healthcare stocks at this time. Here's why, including some thoughts on whether it might belong in your portfolio as well.
Here's what billionaires are digging about Eli Lilly
There are several frequently repeated healthcare names found within billionaires' stock holdings, by the way. For instance, Merck (MRK 1.13%) and UnitedHealth (UNH -0.38%) are also heavily owned by a billionaire crowd that includes Ray Dalio, Paul Tudor Jones, Carl Icahn, and Ken Griffin, just to name a few.
Of the 16 high-profile hedge funds in focus, though, Eli Lilly was in half of them, making it a favorite healthcare pick for these billionaires.
But what makes Lilly so popular right now? Investors familiar with the pharmaceutical giant already know this is the name behind the blockbuster diabetes treatment Trulicity, which produced more than $7 billion worth of sales last fiscal year.
Those same investors will also know, however, that this company's biggest growth drivers at this time are the weight-loss drug Zepbound and the diabetes treatment Mounjaro. After 2022's approval of Mounjaro and the approval of Zepbound late last year, the two drugs (which are variations on the same molecule called tirzepatide, by the way) are now on pace to drive on the order of $16 billion in revenue this fiscal year. These two products, along with Trulicity, now drive roughly half of Eli Lilly's sales, in fact, and most of the pharmaceutical maker's growth.
LLY Revenue (Quarterly) data by YCharts
This is still just the beginning, though. Morgan Stanley's research arm predicts annual worldwide sales of obesity drugs will likely swell from last year's tally of less than $10 billion to more than $100 billion by 2030, jibing with outlooks from Goldman Sachs and IQVIA. In fact, there's a chance the eventual weight-loss market could be even bigger than that.
There's little doubt that's the chief reason that so many billionaire investors are holding Eli Lilly now.
But is the stock a buy for prospective newcomers such as yourself?
Tailwinds galore
It's not as if the market hasn't rewarded the company for this incredible growth. Lilly shares are up nearly 200% since the end of 2022, rising in step with the success of Mounjaro and then Zepbound. That's a pretty intimidating run-up, even with the 18% pullback from August's peak. The stock's forward-looking price-to-earnings ratio of 35 isn't exactly a bargain price, either.
There's also the not-so-small matter of competition. Novo Nordisk's (NVO 0.34%) Wegovy is in the race as well, having produced roughly $5 billion in sales through the first three quarters of the current fiscal year. Pfizer (PFE 0.42%) and Amgen (AMGN 0.52%) continue to work on weight-loss drugs. Indeed, although Novo and Lilly remain the market leaders for now, predictions from Morningstar and Pitchbook suggest 16 more new weight-loss drugs could make their way to the market by 2029, at least posing a threat to a piece of Eli Lilly's business.
Think back to previously learned lessons from real-life experience, though, and apply them here. Like almost any other industry, being first to this market sets a bullish tone for the rest of the war. Not unlike Tesla within the EV space or Nvidia on the artificial intelligence hardware front, Eli Lilly's Zepbound is increasingly becoming the weight-loss business's proverbial gold standard, simply because it's one that consumers are becoming most familiar with.
Credit at least part of this awareness to the fact that Lilly now offers direct-to-consumer access to several of its drugs -- including Zepbound -- bypassing more traditional channels of dispensing prescription pharmaceuticals. It's also worth noting that Eli Lilly has recently begun advertising Zepbound.
The kicker: Although most investors have panicked since August in anticipation of disappointing sales of Zepbound and Mounjaro, the analyst community hasn't flinched. The vast majority of them still consider this stock a strong buy, with a consensus price target of $1,011.81. That's 26% above the stock's present price.
It's a lot of different tailwinds all working in this company's favor.
To buy, or not to buy?
So, yes -- Eli Lilly stock is a compelling buy here, but not because a bunch of billionaires already own it. A bunch of billionaire investors own it because it's a compelling growth pick. The pullback since August only adds some urgency to the bullish argument. This window of opportunity isn't likely to remain open for a lot longer, particularly if the company's more direct marketing efforts start getting traction.
