Every serious portfolio should include monster stocks – companies with substantial market share, sustained growth potential, and robust product lineups. It is no secret that the healthcare sector is a trove for seeking out such monsters. After all, the demand for healthcare products and services only amplifies over time, ensuring a steady climb for companies positioned here.
Currently, two monster stocks commanding attention are Eli Lilly (NYSE: LLY) and Medtronic (NYSE: MDT). Eli Lilly is renowned for its coveted drugs, while Medtronic, a medical device titan, has charted a new growth course with an ambitious transformation plan.
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Eli Lilly’s Earnings Surge
Eli Lilly has taken center stage owing to its sale of two drugs recommended for weight loss, an area where demand vastly outstrips supply. The company, alongside its rival Novo Nordisk, is now investing heavily to scale up production to cope with the booming market. Lilly’s Mounjaro, originally approved for type 2 diabetes, has emerged as a key player in the weight loss segment. With regulators also green-lighting the molecule tirzepatide for chronic weight management under the name Zepbound, the drug brought in over $2.9 billion in sales during the first nine months of last year. Projections by Goldman Sachs suggest that the global anti-obesity market could hit $100 billion by 2030, positioning Lilly and Novo Nordisk for significant gains in this domain.
Lilly’s earnings have been bolstered by the success of its new products, propelling total revenue to a 17% spike in the first nine months of 2023. The company has also ramped up its research and development investments, nearly doubling its spending since 2018. This strategic approach has effectively shortened the time from initial human testing to product launch by more than three years. Such proactive measures augur well for Lilly’s future revenue trajectory, offsetting concerns about its current seemingly pricey valuation at 50 times earnings estimates. The investment seems poised to pay off handsomely in the long run.
Medtronic’s Transformation Journey
Medtronic, a behemoth in the medical device space, wields influence across critical areas such as cardiovascular, diabetes, neuroscience, and medical surgery. Nonetheless, the company’s net income has experienced fluctuations, prompting a strategic overhaul to enhance efficiency, streamline operations, and pave the way for sustained growth. This endeavor has yielded positive results, evident in Medtronic’s robust performance across business lines and geographies in the latest quarter. The company even raised its full-year revenue growth and earnings per share estimates. Adding to this, Medtronic is positioning itself as an early adopter of artificial intelligence in healthcare, inaugurating an “AI center of excellence.” The company has already integrated AI across its offerings, from the GI Genius endoscopy tool to the Minimed 780G diabetes management system.
Navigating forward, Medtronic places increased emphasis on fortifying passive income growth, targeting a minimum of 50% of free cash flow for investors annually. The company has sustained a 46-year streak of boosting its dividend payments, firmly underscoring its commitment to rewarding stakeholders. At merely 16 times earnings estimates, Medtronic’s current valuation significantly discounts the company’s market dominance and transformation potential. For investors eyeing a compelling long-term investment, now appears to be an opportune moment to secure stakes in this monster stock.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Medtronic and Novo Nordisk. The Motley Fool has a disclosure policy.
