LLY Stock Set For A 20% Breakout?

Eli Lilly stock (NYSE: LLY) should be on your radar. Here’s why – it is presently trading within the support range ($688 – $761), price points from which it has previously bounced significantly.

Over the past 10 years, the stock has attracted buying interest at this level 5 times and subsequently achieved an average peak return of 22.4%.

However, is the price movement alone sufficient? It certainly adds value if the fundamentals align. For LLY, read Buy or Sell LLY Stock to evaluate how compelling this buying opportunity could be.

Adding to the compelling technical setup, Eli Lilly announced on September 23rd a massive $6.5 billion investment to construct a new manufacturing facility in Houston, Texas, specifically designed to produce orforglipron at scale – the company’s experimental oral weight-loss pill currently awaiting FDA approval. This substantial capital commitment underscores management’s confidence in its GLP-1 pipeline and positions the company to capture significant market share in the oral obesity treatment market.

That being said, if you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 91% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. Separately, see – What’s Behind The 2x Rise In IBM Stock?

Here are some quick data points:

• Revenue Growth: 36.8% LTM and a 23.4% average over the last 3 years.
• Cash Generation: Nearly -0.09% free cash flow margin and a 43.0% operating margin LTM.
• Recent Revenue Shocks: The lowest annual revenue growth in the last 3 years for LLY was 1.5%.
• Valuation: LLY trades at a P/E ratio of 47.1
• Opportunity vs S&P: Compared to S&P, the stock offers higher valuation, superior revenue growth, and enhanced operating margins

Eli Lilly offers innovative pharmaceuticals globally, including therapies for cancer, rheumatoid arthritis, obesity, and autoimmune disorders such as psoriasis and ankylosing spondylitis.

What Is Stock-Specific Risk If The Market Crashes?

That being said, Lilly is not safeguarded against significant downturns. It experienced a drop of 51% during the Global Financial Crisis and 43% during the Dot-Com bubble. Even in more recent market turbulence, such as the 2018 correction, inflation shocks, and the COVID-19 pandemic, it still observed declines ranging from 18% to 22%. Thus, despite strong fundamentals, this stock can endure a notable decline when markets become adverse.

In fact, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.