Eli Lilly and Company (LLY): Hedge Funds Are Bullish On This Momentum Stock Now
We recently compiled a list of the 8 Best Momentum Stocks To Invest In Right Now. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against the other momentum stocks.
U.S. Labor Market Remains Resilient
After the Fed's rate cut and a positive inflation report, the latest jobs report also showed better-than-expected results. In an interview with Yahoo Finance, Elise Gould from the Economic Policy Institute discussed the latest employment data as she highlighted the continued strength of the U.S. labor market.
Payroll employment increased by 254,000 in September, with revisions adding 72,000 jobs from previous months. The unemployment rate remained stable at 4.1% and showed declines among various demographics, especially among men.
Gould emphasized that the prime-age employment-to-population ratio is at a 23-year high, which shows a strong economy. Despite wage growth reaching 4%, she downplayed concerns that this could lead to inflation and mentioned improvements in productivity and a low labor share of corporate income.
She expressed confidence in the labor market's strength and suggested that it may influence the Fed's decisions on interest rates. She also believes that the Fed should normalize rates, which remain high historically given current employment levels.
Gould observed that the overall labor market is strong, but not excessively heated, as shown by softer job turnover rates.
Economic Resilience and Its Impact on the Stock Market
At CNBC’s Closing Bell, Wharton finance professor Jeremy Siegel discussed the impact of the recent economic data on the stock market. He noted that while 550,000 jobs were added in the third quarter, wages remained flat, leading to a GDP growth projected at 2.5% to 3%.
Siegel believes that the Federal Reserve will likely implement smaller rate cuts of 25 basis points rather than larger cuts and will aim for a long-term neutral rate of about 3.5% by the second half of next year.
He expressed optimism regarding the stock market and suggested that the S&P 500 could reach 6,000 by year-end. However, he mentioned that higher yields may present challenges.
Despite concerns about equity valuations appearing high, Siegel pointed out that with cash still abundant and a resilient economy, the market remains attractive. He acknowledged that while the forward earnings ratio for the market is around 21.5x, it is not expensive in the current economic climate. He emphasized the absence of recession indicators and the potential for earnings growth and suggested that while significant market gains may not be expected, there is still room for growth.
Our Methodology
For this article, we looked at the October 2 holdings of iShares MSCI USA Momentum Factor ETF and narrowed our list to 8 stocks most widely held by institutional investors. The best momentum stocks to invest in are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey's database of over 900 elite hedge funds.
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 an American pharma company headquartered in Indiana. The company is widely recognized for its development of medications, including the antidepressants Prozac and Cymbalta, and diabetes treatments like Humalog and Trulicity.
It was the first company to mass-produce the polio vaccine and human insulin using recombinant DNA technology. Its recent focus includes diabetes, obesity, Alzheimer's, and autoimmune diseases. The company ranks at 4 on our list of best momentum stocks.
On September 13, Eli Lilly (NYSE:LLY) announced that the U.S. Food and Drug Administration has approved EBGLYS (lebrikizumab-lbkz) for treating moderate-to-severe atopic dermatitis in adults and children aged 12 and older who do not respond well to topical treatments. The new biologic medication offers a significant treatment option for patients struggling with severe eczema symptoms, such as persistent itching and skin irritation.
Recent studies reveal that EBGLYSS provides long-lasting disease management for over 80% of adults and adolescents suffering from moderate-to-severe atopic dermatitis. The findings come from the extended ADjoin study, which tracked participants for up to three years.
About 87% of patients were able to achieve and sustain clear or nearly clear skin without relying on high-potency topical corticosteroids or systemic therapies during the study.
Furthermore, the safety profile observed after three years was consistent with earlier two-year results, with the majority of reported adverse effects categorized as mild or moderate.
Eli Lilly (NYSE:LLY) also announced a significant $4.5 billion investment to establish the Lilly Medicine Foundry in Lebanon, Indiana, aimed at advancing drug manufacturing and development. The facility will integrate research and manufacturing processes, which will improve the company’s capacity to produce clinical trial medicines while exploring new production techniques.
The project will generate approximately 400 high-skilled jobs and strengthen the company’s commitment to Indiana, where it has invested over $13 billion. The state will provide infrastructure support and economic incentives to facilitate this initiative.
On October 3, TipRanks reported that Deutsche Bank analyst James Shin reaffirmed a Buy rating for Eli Lilly (NYSE:LLY) with a price target of $1,025. He highlighted the resolution of the Tirzepatide supply shortage, classified by the FDA as “resolved,” which is expected to lead to an increase in shipments in the latter half of 2024.
The increase aligns with strong market demand, supported by data from the American Society of Health-System Pharmacists and IQVIA. Shin also pointed to strong sales growth for the company's Mounjaro and Zepbound drugs, which are contributing positively to revenue. With supply issues resolved, the focus shifts to a more fundamental assessment of Eli Lilly's (NYSE:LLY) growth potential, which improves investor confidence in the company's future performance.
PGIM Jennison Health Sciences Fund stated the following regarding Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a diversified biopharmaceutical company with core franchises in Diabetes, Obesity, Immunology, Neurodegeneration, and Oncology. The company is one of the two global leaders in diabetes with blockbuster products in Trulicity and recently launched Mounjaro (tirzepatide) to serve this large underserved market. To date, the Mounjaro launch is the strongest for any diabetes drug ever launched, which we attribute to off label usage in the obesity indication as well as on label use in diabetes. We believe the tirzepatide (the generic name for Mounjaro) franchise is also uniquely positioned to grow substantially from here thanks to its recent approval for obesity. To that note, in late 2023, Eli Lilly received approval for tirzepatide in obesity and is commercializing it for obesity under a new brand name, Zepbound. While still early in the launch, uptake has been extremely strong, exceeding that of both Wegovy and Mounjaro at the same timepoint in their launches. While Alzheimer’s Disease has been a tough market for drug developers, Eli Lilly has breakthrough designation from the food and drug administration (FDA) for donanemab and recently presented Phase III pivotal trial data that positions donanemab as the most efficacious drug in the class. In June, the FDA advisory committee voted unanimously in favor of donanemab as an effective treatment where the benefits outweigh the risks, praising the therapy as innovative. Donanemab was then approved under the brand name Kisunla in early July. Eli Lilly also has exciting franchises in dermatology, immunology, and oncology that are starting to add meaningfully to growth. With a proven history of strong commercial execution and one of the highest research and development (R&D) success rates in the industry, we see opportunity for continued success. With a lack of meaningful patent expirations for the rest of the decade. Eli Lilly is uniquely positioned amongst its larger-cap peers. Recent positive performance has been driven by the continued strong growth of Mounjaro and Zepbound, which led to a big guidance raise on the 1Q call, an unusual action for Eli Lilly this early in the year, which speaks to their confidence in the strong trends they are seeing.”
Overall LLY ranks 4th on our list of the best momentum 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 but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.