Marc Cuniberti JP Morgan, the investment bank behemoth, named drug conglomerate EI Lilly as its top stock pick on August 9 according to Yahoo Finance.
Kind of no surprise there, as Lilly’s stock has climbed almost straight up for 4 years. Not without the usual ups and downs that stock charts exhibit, Lilly has gone from the low 100s to 966 at its high in July of this year. Since then, it has given back about 20% only to take off again when it posted earnings on August 8.
Blasting through analyst estimates, Lilly rang up over 11 billion dollars in sales for the quarter ending in June and by some metrics exceeded analysts’ expectations last quarter by 48%.
That is a pleasant surprise for shareholders, no doubt, but it’s also a massive earnings report compared to what many thought would be just a good quarter.
Although Lilly has many of its drug products spread out throughout a variety of remedies, the new weight loss drugs are called GLP-1 type antidotes that were originally designed for diabetes. During drug trials, however, the positive and highly sought-after result of weight loss started to emerge in a big way. Also in the GLP-1 mix is Denmark-based pharmaceutical company Novo Nordisk.
I covered the GLP-1 style drugs in previous Money Matters articles so I won’t go too deep into the weeds about the drugs themselves. Just know the GLP-1 from Novo and Lilly works like no other previous weight loss drugs known to men (or women). GLP-1 is an incretin hormone primarily known for its role in glucose homeostasis and satiety regulation. (Google)
That means whereas previous diet drugs were various versions of uppers, the GLP-1 drug kills appetite by making one feel satiated with little eating. The same full feeling you get after a meal. It works amazingly so the story goes, and they are finding it may help with heart disease, and blood sugar levels and may even reduce cravings for narcotics, alcohol, and addictive diseases like OCD, gambling addictions, and possibly other mood disorders and habitual behaviors.
Although other pharmaceutical companies are working on their own versions of GLP-1 drugs, Lilly and Novo are by far ahead of the pack both in approval from the FDA and drug development.
The stocks of both Novo and Lilly have reached multiples known only to the very best of companies. Bordering on a mania where everyone and anyone buys a stock knowing little else than it’s going up in price, with each new discovery of the GLP-1 benefits, the stocks of GLP-1 leaders Lilly and Novo blast upwards.
Although Novo posted a fairly benign earnings report based on what was thought to be only temporary negative factors and saw its stock fall a few days earlier, when Lilly reported its second quarter, analysts hit the floor in astonishment while investors hit the buy button of both stocks in earnest.
The GLP-1 drug class has drawn worldwide attention and many well-known celebrities have been sporting around showing off their new slimmed-down figures.
With demand for the approved versions of Lilly and Novo being off the charts, supplies are tight and costs are high.
The usual Washington bureaucrats are calling for the companies to lower prices but the companies so far have failed to address the issue. The thinking may be that since the GLP-1 drugs are so useful for a variety of ailments, with obesity and heart disease being the number one killers, Medicare will be under pressure to pay for the GLP-1 arsenal of remedies.
For now, both companies are working on easy-to-administer versions of the drugs, with no doubt other enhancements and improvements forthcoming.
Of course, any one of many negative news events concerning usage, abuse, and side effects that might arise could cause a massive run for the exits. Investors should be aware that a widespread sell-off could crater one or both of either company’s stock. Both stocks have run up a ton since the drugs have been found to cause weight loss. The possibility of even more far-reaching benefits is driving the stocks even higher.
That said, in conclusion, although EI Lilly is JP Morgan’s number one stock pick today, in the world of stocks, it’s always possible today’s number one pick could, for whatever reason, end up on the fecal roster of famous stock implosions.
“Watching the markets so you don’t have to”
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm, or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. Insurance Services. Email: [email protected]
