Most of Israel "Izzy" Englander's favorite stocks these days are technology leaders. At least that's the conclusion you'd draw based on the top holdings of the billionaire's Millennium Management hedge fund.

However, Englander's interest isn't limited to tech stocks. The billionaire recently bought an obesity drug stock that could soar nearly 20% over the next 12 months, according to Wall Street.

Loading up on Lilly

Englander loaded up on Eli Lilly (LLY -1.38%) stock in Q3. His hedge fund added more than 458,000 shares to its existing position in the big drugmaker, increasing its stake by a whopping 86%. Lilly ranked as the seventh-largest-holding in Millennium Management's portfolio at the end of Q3 with a valuation of over $877 million.

Millennium Management's quarterly 13-F filing to the U.S. Securities and Exchange Commission doesn't reveal exactly when the purchase of Lilly shares was made. We only know that it occurred sometime during the third quarter.

However, I'd bet that Englander increased his hedge fund's stake in Lilly either in late July or early August. The pharma stock took a nosedive during that period, presenting a great buying opportunity for forward-looking investors.

What caused Lilly's pullback? On July 17, Roche announced positive results from a phase 1 clinical study of CT-996 in treating obesity and type 2 diabetes (T2D). Generally, early-stage clinical results from a potential rival wouldn't rattle Lilly. But Roche's CT-996 is a once-daily oral pill that could be attractive to patients, compared to Lilly's Zepbound, which is administered via injection.

Why Wall Street loves the big pharma stock

Wall Street doesn't seem worried about CT-996 or other potential competitors to Zepbound. The average 12-month price target for Lilly reflects an upside potential of 19%, even though the stock has soared more than 40% this year.

Of the 27 analysts surveyed by financial markets infrastructure and data provider LSEG in December, 21 rated Lilly as either a buy or a strong buy. Another five recommended holding the stock, while a lone outlier recommended selling.

Zepbound and its sibling product, T2D drug Mounjaro, are big reasons why so many analysts remain enthusiastic about Lilly's prospects. The two drugs combined for over $11 billion in sales during the first nine months of 2024. However, that impressive haul should represent just the tip of the iceberg.

Lilly's main competition right now in the obesity and T2D markets is Novo Nordisk, which sells Ozempic and Wegovy. But earlier this week, Lilly reported results that showed Zepbound delivered significantly greater weight loss than Wegovey in a head-to-head clinical trial. This could give Lilly's drug a solid competitive advantage going forward.

Are Englander and analysts right about Eli Lilly?

Are there any reasons to doubt Englander's and analysts' enthusiasm about Eli Lilly? Maybe. The company could face increased competition in the obesity and T2D markets. Some investors might worry about Lilly's valuation, with shares trading at a forward earnings multiple of 35.8. However, I have a different take.

Sure, new drugs could enter the market that give Zepbound and Mounjaro a run for their money. But those drugs could come from Lilly's own pipeline. The big company is evaluating two drugs in late-stage testing that target obesity and T2D and has three other experimental obesity drugs in phase 2 testing.

Lilly's valuation only seems high when you look at the company's near-term earnings. If you extend the horizon out five or more years, though, the stock is actually a bargain based on its growth prospects.

I don't know if Lilly's share price will rise nearly 20% over the next 12 months as Wall Street expects, and I don't know if Englander will keep buying the stock or sell in the near future. However, I believe analysts are right to be upbeat about Eli Lilly.