We recently published a list of 8 Most Promising Healthcare Stocks According to Hedge Funds. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against other most promising healthcare stocks according to hedge funds.
The Healthcare Sector: Growth, Innovation, and the Impact of AI
The healthcare sector depends on medical technology advancements, particularly devices used in disease prevention, diagnosis, and treatment. Unlike pharmaceuticals, medical devices work through physical or mechanical means rather than chemical processes. Key products include pacemakers, imaging equipment, dialysis machines, and implants.
In the US, the healthcare sector is flourishing. According to a recent estimate, the country’s healthcare spending increased by 7.5% in 2023, above the nominal GDP growth rate for the same year. A record 93.1% of Americans now have health insurance, which helped fuel last year’s sharp increase in healthcare spending. The country’s national healthcare spending is expected to increase at an average rate of 5.6% between 2023 and 2032, above the 4.3% growth predicted for GDP.
Additionally, the industry is growing quickly on a global scale. According to recent McKinsey projections, healthcare profits would increase at a compound annual growth rate (CAGR) of 7% from $583 billion in 2022 to over $800 billion by 2027. Although labor shortages and rising inflation rates continued to pressure the business in 2023, a good risk-reward climate in the sector is expected to make 2024 a year of recovery. According to the American investment firm, the events of 2023 have produced an alluring opportunity for investors to engage in the healthcare industry.
According to research published this month by Silicon Valley Bank, investments in artificial intelligence (AI) in the healthcare sector have also increased dramatically in recent years, expanding at a rate twice as fast as the IT sector. According to the report, businesses using AI account for one out of every four dollars spent in the healthcare industry. The Silicon Valley Bank anticipates that over $11 billion will be spent in the AI healthcare industry this year, with an estimated $2.8 billion already invested in 2024.
Investor confidence in the healthcare industry is still high, according to Deloitte’s 2024 Global Health Care Sector Outlook. The industry received $31.5 billion in private equity funding between 2019 and 2022. Over the next five years, the United States healthcare sector might save almost $360 billion thanks to the numerous businesses integrating artificial intelligence into their operations. Shortly, AI is probably going to have a big impact on medical administration, diagnosis, treatment, and patient care. Predictive analytics and health record automation are expected to further improve the effectiveness of healthcare providers and their offerings.
In recent months, growing economic uncertainty has prompted a shift toward more defensive stocks, with healthcare emerging as a key beneficiary. The broader market’s healthcare sector has surged by over 3.6% and in the past year, it has returned over 11%. In view of this, we will take a look at some of the most promising stocks from the healthcare sector.
Our Methodology
For our methodology, we picked the most weighted stocks from the iShares Global Healthcare ETF and then ranked them based on their total number of hedge fund holders as of Q3 2024, as tracked by the Insider Monkey database.
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: 106
Eli Lilly & Company (NYSE:LLY) is a global pharmaceutical corporation that develops, manufactures, and sells a wide range of medicines. Founded in 1876, the company has grown into one of the world’s largest pharmaceutical firms, focusing on areas such as diabetes, oncology, immunology, and neuroscience.
The company is aggressively working toward a strong plan focused on increasing the range of products it offers and improving its production capacity. With recent achievements including the FDA’s clearance of Kisunla for Alzheimer’s and the filing of tirzepatide for obstructive sleep apnea in the US and the EU, the firm is concentrating on tackling important health challenges like obesity and Alzheimer’s disease. With 11 novel compounds in clinical trials to treat obesity and other chronic illnesses, Eli Lilly & Company (NYSE:LLY) is also making significant investments in its pipeline. To improve its immunology pipeline with oral integrin therapies—which are intended to treat severe chronic illnesses—the business also recently agreed to purchase Morphic Holding, Inc.
With a 36% rise in revenue over the same period last year, Eli Lilly & Company (NYSE:LLY) achieved outstanding success for the second quarter of 2024. Strong sales of Mounjaro, Zepbound, and Verzenio were the main drivers of this expansion. The market demand for these new items and their successful launch led to a 68% increase in earnings per share. The company has increased its full-year revenue projection by $3 billion as a result of these accomplishments, demonstrating its confidence in its trajectory of future growth.
Eli Lilly and Company (NYSE:LLY) also revealed a substantial $4.5 billion commitment to build the Lilly Medicine Foundry on October 2. The LEAP Research and Innovation District in Lebanon, Indiana, will house this new facility for drug discovery and advanced manufacturing. Lilly will be able to investigate new production techniques and expand the capacity for clinical trial medications because of the facility’s unique integration of drug research and manufacture in one location.
According to Insider Monkey’s database of over 900 hedge funds as of Q3 2024, Eli Lilly and Company (NYSE:LLY) was held by 106 hedge funds. Baron Funds stated the following regarding Eli Lilly and Company in its “Baron Health Care Fund” second quarter 2024 investor letter:
“Shares of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next-generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become the standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
Overall, LLY ranks 2nd on our list of most promising healthcare stocks according to hedge funds. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.