When it comes to investing in 2024, Eli Lilly and Company (LLY) and the Vanguard S&P 500 ETF (VOO) present two very different avenues, each with its own set of benefits and risks. With LLY’s earnings report just around the corner on 8 August, it’s a perfect time to weigh up these two intriguing investment options.
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Eli Lilly’s Explosive Growth: Worth the Hype?
Eli Lilly has had a stellar year so far, delivering a staggering 62.09% return year-to-date. This phenomenal performance can be largely credited to the soaring popularity of its weight loss medications, Mounjaro and Zepbound. With the pharmaceutical industry constantly evolving, LLY’s Q2 2024 revenue projection of $9.97 billion marks a hefty 20% increase from last year. This sort of growth is impressive, even in the competitive world of pharmaceuticals.
Stock price and Total Return CAGR: LLY vs. VOO
LLY's dominant position in the weight loss drug market could be challenged by emerging competitors like Viking Therapeutics and Roche, whose pipeline advancements warrant close monitoring. However, as thrilling as LLY’s gains might be, they come with a catch. The company’s Sharpe ratio, which measures return against risk, stands at a robust 2.53. This suggests $Eli Lilly(LLY)$ has been rewarding investors well for the risk undertaken. Yet, the trade-off is that LLY’s volatility is quite high, at 10.39% compared to VOO’s 4.24%. So, while the potential for higher returns exists, it’s accompanied by greater swings in stock price.
YTD Volatility: Comparing LLY’s and VOO’s market fluctuations
LLY's current valuation, significantly above historical industry averages, suggests investor optimism about its long-term growth prospects, although it also implies a higher degree of risk. Looking ahead, analysts forecast a 35% rise in net income to $2.39 billion, driven by continued success in the weight loss drug market. But, let’s not forget that competition is heating up. Companies like Viking Therapeutics and Roche are making strides, which could challenge LLY’s dominance in the future.
Market sentiment and investor expectations surrounding LLY's upcoming earnings report are likely to be highly influential on short-term stock price movements, creating potential opportunities and risks for investors.
Vanguard S&P 500 ETF: The Steady Performer
In contrast, $Vanguard S&P 500 ETF(VOO)$ offers a much steadier investment landscape. Tracking the S&P 500, this ETF provides exposure to 500 of the largest US companies. It’s been a solid performer with a year-to-date return of 19.63%. While this is notably lower than LLY’s explosive growth, VOO’s charm lies in its stability and diversification.
Dividend Yield and comparisons: LLY vs. VOO across timeframes
VOO’s approach is low-cost and diversified, allowing investors to tap into a broad spectrum of large-cap stocks. Its lower volatility and steady performance make it a favourite for those looking for long-term, stable growth without the wild price swings that can accompany individual stocks like LLY.
Making the Choice: Risk vs. Stability
So, which investment option is best? It largely hinges on your appetite for risk and investment objectives. If you’re willing to embrace the rollercoaster ride of higher volatility for the chance of significant returns, LLY could be an enticing prospect. The company’s impressive financial projections and its leading position in the weight loss drug market present a compelling case, albeit with the caveat of increased risk and high valuation.
On the other hand, VOO’s steady performance and lower volatility offer a safer harbour for those prioritising stability and long-term growth. As a low-cost index fund, it’s ideal for investors who prefer a more balanced approach and are keen on building a diversified portfolio without the stress of tracking individual stocks.
To Buy or Not to Buy?
If you’re eyeing $Eli Lilly(LLY)$, it might be prudent to wait for the upcoming earnings report before making a move. While the potential for price increases exists if the results are favourable, the current high valuation suggests a cautious approach could be wise.
For $Vanguard S&P 500 ETF(VOO)$, its status as an index fund means it’s generally a suitable investment at almost any time, particularly for those building a diversified, long-term portfolio. Its broad market exposure and stable performance make it a dependable choice for risk-averse investors.
In conclusion, Eli Lilly and Vanguard S&P 500 ETF both present unique investment opportunities. LLY’s remarkable growth and strong financial outlook offer exciting possibilities, though with higher risk. VOO, with its broad market coverage and lower volatility, is a solid choice for those seeking stability and steady growth. As ever, aligning your investment choices with your personal financial goals and risk tolerance is the key to successful investing.
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