Pharmaceutical stocks make great additions to any portfolio in any market environment. A good one promises steady revenue growth thanks to the fact that patients need their medicines -- so will continue with them no matter what the economy is doing. A top pharma stock also may have one particular star product that brings in blockbuster revenue, and this growth could drive stock performance. Finally, pharma stocks often pay dividends, an extra bonus to ensure that every year you'll generate income from this investment -- without lifting a finger.
Of course, to benefit from all of this, you'll want to invest in these players for the long term, meaning at least five years. This offers you the opportunity to potentially score a win as revenue grows and collect passive income along the way. One pharmaceutical company in particular offers everything I mentioned above. And with $1,000, you can get in on this player that should offer you the fantastic combination of stability and growth over time. Let's check out this ultimate pharma stock to buy now.
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One of today's most sought-after pharmaceuticals
This particular stock has made the headlines this year as it sells one of the most sought-after products around: weight-loss drugs. In fact, this company is a leader in the market, generating double-digit revenue growth and billion-dollar revenue every quarter. I'm talking about Eli Lilly(NYSE: LLY), maker of Mounjaro and Zepbound.
Both drugs are based on the same molecule -- tirzepatide -- but Mounjaro is approved for type 2 diabetes, and Zepbound is approved for weight loss. Doctors have prescribed both for weight control, though, especially prior to the Zepbound approval a year ago. Mounjaro won the regulatory nod earlier, in 2022.
These drugs, known as GIP and GLP-1 receptor agonists, work by acting on hormones involved in blood sugar regulation and appetite. They've demonstrated excellent results in clinical trials and in the real world -- and that's helped demand to soar. In fact, demand for these weight loss drugs from Lilly and similar ones from rival Novo Nordisk surpassed supply, prompting both companies to ramp up their manufacturing capacity.
Today, Mounjaro and Zepbound both have become blockbusters, and in the most recent quarter, they generated $3.1 billion and $1.2 billion in revenue, respectively. Goldman Sachs predicts the weight loss drug market may reach $130 billion by the end of the decade, according to Bloomberg. This suggests plenty of growth may be ahead.
Lilly's challenges may be temporary
Still, Lilly faces the challenges of increased competition down the road and even compounders taking market share right now. But I don't think these problems will greatly hurt long-term demand for Lilly's products. Though rivals are studying weight loss candidates in the pipeline, Lilly is doing to same -- so this pharma giant may launch other, even better weight loss drugs in the years to come. As for compounders, they are taking market share right now, but once the U.S. Food and Drug Administration declares the weight loss drug shortage to be over, compounders must stop serving patients.
On top of all of this, Lilly has a full portfolio of drugs across treatment areas -- from cancer to autoimmune diseases -- and a pipeline that should add to revenue growth down the road. In the first nine months of the year, four of Lilly's major drugs outside of the weight loss portfolio posted double-digit growth compared to the year-earlier period.
Lilly also is committed to rewarding investors, and in the most recent quarter, the pharma giant returned $1 billion to shareholders through dividends and $500 million through share buybacks. The company pays a dividend of $5.20 per share, representing a yield of 0.6%. This isn't the highest dividend yield around, but that's OK considering this company offers you not only passive income but impressive revenue growth too. So, by investing in Lilly, you get the revenue trends of a growth stock along with the security of a dividend stock.
A stock to buy on the dip
And the great news is right now you can buy Lilly on the dip, at a valuation of 57 times forward earnings estimates compared with more than 70 just a couple of months ago. It's true that Lilly's Mounjaro and Zepbound, already bringing in billions of dollars per quarter, moving forward may not grow as quickly as they did in their earliest days.
But these drugs and potentially new Lilly weight loss drugs to follow still should deliver significant growth over time, and this could translate into a win for investors too. So, Eli Lilly, with its focus on growth, its broad range of products, and commitment to dividends, makes the ultimate pharma stock to add to your portfolio.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
