Yahoo Finance

It's a big noise universe of stocks out there. Welcome to good buyer, good buy. Our goal here is to help cut through that noise to navigate the best moves for your portfolio. And today, we're looking at the GLP-1 weight loss drug landscape, Eli Lilly heating up the competition with slashing prices for self-paid patients. So what's the best way to play it? Now I'm here with Round Hill Investments Chief Executive Officer, Dave Massa. Dave, good to see you as always.

Thanks for having me.

All right, so let's start with your first buy here, and it is Eli Lilly. Your timing is perfect, Dave. They were making news today. Let's run through these bullets. Why you say this one is still a buy. The first one, head start in the GLP-1 weight loss drug space.

Yeah, so GLP-1 weight loss drugs weren't on anyone's radar until recently. And same as generative AI and AI, Lily is the Nvidia of the GLP-1 and weight loss space.

Isn't it amazing? We used to say things with the Uber of something. Now you say the Nvidia.

Exactly. So it's it's become a term on of itself, but there's a reason for that. They've been working on these drugs for decades. Uh Novo Nordisk has as well, but because of that, and because there's such a shortage of them, and there's insatiable demand because of the obesity problem, they their leadership, their head start, they have drugs in market is why they're seeing such strong earnings growth for these drugs and for their really entire platform.

Okay, so first bullet point is the head start. Let's go down optimistic sales outlook.

Yes, they just released earnings and you saw some of these numbers, and we're seeing uh various drugs, go to grow at over 100%, 200% in some cases. And at the same time, the company is actually increasing their forecast, right? So not just beating and raising, but blowing away the numbers. And also, even today, they've come out and said, as you pointed the intro, that they're now going to offer on their direct to consumer website a a version that's basically half off. Um Now the difference there is that's an injectable in a traditional way versus these pens, but still, if you've been waiting around, or if you don't have insurance to pay for it, there's a great way to get those drugs that you were looking for.

So you like that move strategically and financially for them?

Well, over time, these uh these prices are going to come down. We all hear about these $1,000 prices, right? Outside of the US, people don't pay those prices. Uh and if you, but if you don't have insurance, um this is a way to make it much more attractive. So I think what they're trying to do is basically make their total addressable market come to them quicker.

Final point here, final bullish point, Dave, its place as leadership stock. You see it intact right now?

Yeah, exactly. So if you look at the if you look at the technicals of this stock, um certainly had a really strong, robust run-up, fell in that July and August period where a lot of the and kind of got thrown into that AI sell-off because it was such a momentum leader. But it it it actually has maintained its attractive technical profile, and that to me is even though this is a nearly trillion dollar company, um like some of the other uh AI mega cap tech leaders, it still has that bullish case intact.

And uh before folks now pile in, you laid out the bullish case, but what are the downside risks in your opinion viewers need to think about before they commit capital here?

Look, anytime a company that's up over 70% year to date and even stronger over the long term, it's a remarkable run, right?

It's a remarkable run.

Exactly. So you got to you got to be careful, right? So I think it is worth kind of kind of checking yourself before you just dive right in, right? And so one of them would be, do these sales growth actually forecast end up disappointing? We don't believe that to be the case to date. They've been delivering, but certainly some negative news or negative headlines could come on and change that because anytime you see a stock trade really at such high multiples, it doesn't take a lot for it to have a sell-off.

Do you think, Dave, after that kind of run, valuation, how do you think about that dynamic?

Well, it's interesting. They keep growing into their valuation because they keep growing their top line. And so certainly, if you were to just screen it on a price earnings multiple compared to other healthcare stocks, it would look very expensive, but those healthcare stocks are not growing anywhere near the pace that Lilly is.

All right, so you like Eli Lilly. Let's turn to what you're not such a fan of here, where you're a little bit more skeptical. Now it'll be Hims and Hers. Let's run through those bullets, too, Dave. So the first reason, deterioration on absolute and relative basis.

So I I the last bullet point on Lily was its technical case was was remaining favorable. In this case, Hims, if you had that chart up a moment ago, huge run-up, up 150% in four months, but now it's been slowly deteriorating. Um I think this is a name that kind of got caught up into a little bit of a retail craze, uh because it was, you know, it's kind of an exciting name, right? It's digital healthcare and things of that nature. But um basically since then, it's all the stocks done is really sell off, and today is really uh is is a prime example of that.

Let's go to bullet point number two, another reason you'd stand on the sidelines with this, concerns with its GLP-1 offerings.

Yeah, so first and foremost, what they're selling is not technically GLP-1 drugs. They're what's called compounding drugs. They're made through compounding pharmacies. So a company goes up and makes treatments and therapeutics that look and feel a lot like the actual medicines. Uh and many people um say they're safe. Uh they are doing so in FDA approved facilities, but they're not FDA approved drugs. Um and there's been some short sellers who've been some pretty good research on this basically saying that actually the place that's making them has a little bit of a shady past. Um so that would give me uh that gives me some concern about their entry into this space.

And a final final reason for skepticism in your opinion, Dave, potential supply boost to GLP-1 drugs.

Look, so Hims and Hers got into this space because there's so much demand um that Lily and Novo and others can't meet the supply, right? And that's one reason why people um the stock has gone up so much. Hims got into this space and said, "We're going to do this on the cheap, significantly less expensive." But guess what? The supply chain is quickly uh improving. Lily and Novo, particularly Lily, is investing in factories in North Carolina, their home state of Indiana, and those are going to come come online sooner than later and basically making it so that someone doesn't need a copycat drug to get the actual real drug that they want.

Final point here on this one as well. Let's talk about maybe some of the upside risks viewers have to consider.

Look, they reported earnings earlier in August, and their core business actually was okay. Their core business is subscription services, and that was growing and it beat expectations, still pretty small. Um so again, if they can kind of grow out of this and find their way forward as a a pharmaceutical company, then that would be a risk. We don't necessarily see that coming to fruition, but that is, you know, the rest of the upside.

Yeah. It is interesting because we've had bulls on this stock come on. And just in broad strokes, I think strategically, what they kind of pound the table on is they say, listen, it's great value for customers. That's a bull. You know, you hear them make like, you don't have to physically go to the doctor's office. You don't have to go to the pharmacy to pick up the prescriptions. What do you say to that?

No, I think 100%. This is actually, I think, a loved and hated stock. If you go on social media, there's a huge following of folks uh who believe in the space because because of those points. I think ultimately, look at Eli Lilly today. They came out and Pfizer actually has done the same thing. They're going to have a direct consumer platform. So just like um many spaces have seen financial services is a good one. You see these upstarts and uh digital wealth platforms. Well, the big boys figure it out pretty quickly, and we're starting to see that with Lily.

All right, Dave. So bottom line, you like Eli Lilly. You'd steer clear of Hims and Hers here.

That's correct.

Thank you, Dave, so much for your time and those picks. I appreciate it. And thank you for watching, good buyer. Good buy. We're going to be bringing you new episodes at 3:30 p.m. Eastern.