Israel ‘Izzy’ Englander’s most favorite stocks today are technology leaders. At least that’s the conclusion you’d draw based on the top holdings of the billionaire’s Millennium Management hedge fund.
Englander’s interest is not limited to technology stocks, however. The billionaire recently bought a stock of anti-obesity drugs that Wall Street estimates could rise nearly 20% over the next 12 months.
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Englander continued Eli Lilly(NYSE: LLY) inventory in the third quarter. His hedge fund added more than 458,000 shares to its existing position in the major drugmaker, increasing its stake by as much as 86%. Lilly was the seventh largest holding in Millennium Management’s portfolio at the end of the third quarter, with a valuation of more than $877 million.
Millennium Management’s quarterly 13-F filing with the U.S. Securities and Exchange Commission does not reveal exactly when the purchase of Lilly stock occurred. All we know is that it occurred sometime in the third quarter.
However, I would bet that Englander increased his hedge fund’s stake in Lilly in late July or early August. Pharmaceutical stocks fell during that period, presenting a great buying opportunity for forward-looking investors.
What caused Lilly’s withdrawal? On July 17, Roche announced positive results from a Phase 1 clinical trial of CT-996 in the treatment of obesity and type 2 diabetes (T2D). Overall, early-stage clinical results from a potential rival wouldn’t upset Lilly. But Roche’s CT-996 is a once-daily oral pill that could be attractive to patients, compared to Lilly’s Zepbound, which is given by injection.
Wall Street doesn’t seem concerned about CT-996 or other potential competitors to Zepbound. The average 12-month price target for Lilly reflects an upside potential of 19%, even though the stock is up more than 40% this year.
Of 27 analysts surveyed by the financial markets infrastructure and data provider LSEG in December 21 rated Lilly a Buy or Strong Buy. Another five advised to hold the shares, while a single outlier advised to sell.
Zepbound and its sister product, the T2D drug Mounjaro, are key reasons why so many analysts remain excited about Lilly’s prospects. The two drugs together generated sales of more than $11 billion in the first nine months of 2024. However, these impressive returns should only be the tip of the iceberg.
Lilly’s main competition is currently in the obesity and T2D markets Novo Nordiskwhich sells Ozempic and Wegovy. But earlier this week, Lilly reported results showing that Zepbound delivered significantly greater weight loss than Wegovey in a head-to-head clinical trial. This could give Lilly’s drug a solid competitive advantage in the future.
Are there reasons to doubt Englander’s and analysts’ enthusiasm for Eli Lilly? Maybe. The company could face increasing competition in the obesity and T2D markets. Some investors may be concerned about Lilly’s valuation, with shares trading at an earnings multiple of 35.8. However, I have a different approach.
Of course, new drugs could come onto the market that would give Zepbound and Mounjaro a chance to get their money’s worth. But those drugs could come from Lilly’s own pipeline. The major company is evaluating two drugs in late-stage testing that target obesity and T2D and has three other experimental anti-obesity drugs in phase 2 testing.
Lilly’s valuation only seems high when you look at the company’s near-term earnings. However, if you extend the horizon for five or more years, the stock is actually a bargain based on its growth prospects.
I don’t know if Lilly’s stock price will rise nearly 20% over the next twelve months as Wall Street expects, and I don’t know if Englander will continue to buy or sell the stock for the foreseeable future. However, I think analysts are right to be optimistic about Eli Lilly.
Consider the following before purchasing shares in Eli Lilly:
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Roche Holding AG. The Motley Fool has a disclosure policy.
Billionaire Izzy Englander is buying this stock of anti-obesity drugs that could rise nearly 20%, according to Wall Street originally published by The Motley Fool
