3 Reasons to Buy Eli Lilly Stock

Eli Lilly (NYSE: LLY) has been firing on all cylinders. The stock is up 40% over the past 12 months as the company continues to grow revenue and earnings faster than most of its similarly sized peers. And for what it's worth, the pharmaceutical leader has also left these peers far behind, becoming the first healthcare company to reach $1 trillion in market value. However, it might not be too late to invest in the drugmaker. Let's consider three reasons why Eli Lilly could have far more upside ahead.

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1. The weight loss tailwind is only getting started

Eli Lilly's leadership in the weight loss market has been instrumental to its success in recent years. Sales of the company's Zepbound (tirzepatide) -- the first dual agonist of the GLP-1 and GIP hormones to receive approval from the U.S. Food and Drug Administration -- are growing rapidly. Eli Lilly's oral GLP-1 medicine, Foundayo, is also contributing. Yet Eli Lilly still has significant untapped potential in this space.

Consider Foundayo, which earned approval in April for chronic weight management. It is helping attract brand-new patients: Management has said that 80% of prescriptions were for people who had never taken GLP-1 medicines before. The drug could gain even more ground in the oral GLP-1 market, though. It recently completed a trio of phase 3 studies, in patients with type 2 diabetes, with flying colors.

Foundayo showed strong efficacy in helping reduce diabetics' A1C levels and weight. If it is approved for this indication, Foundayo could gain ground on its main competitor in the oral GLP-1 market, Wegovy pill. Many patients who are overweight or obese are also either prediabetic or diabetic. Physicians may be more willing to prescribe Foundayo if it is effective for both patient groups. Further, unlike oral Wegovy, Foundayo has no food or water restrictions, making it the more convenient option.

Eli Lilly has several other pipeline candidates that will help it cement its leadership in this niche. Retatrutide, a phase 3 asset, posted what look like best-in-class weight loss efficacy numbers and could help the company target patients with very high BMIs (Body Mass Index) who need more aggressive weight loss. The lesson: The anti-obesity space is still arguably underpenetrated. That's why analysts project that it will grow rapidly through the next decade. And arguably no company is better positioned to capitalize on this than Eli Lilly.

2. Investing in pipeline diversification

Although Eli Lilly's weight-loss portfolio is incredibly strong and is helping drive solid top-line growth, the company depends heavily on its core therapeutic areas, including diabetes. In the first quarter, sales from the company's top two selling brands -- Zepbound and the diabetes medicine Mounjaro -- accounted for almost 65% of its total revenue. Eli Lilly has been looking to address that problem, partly by boosting and diversifying its lineup through licensing deals and acquisitions.

The company has invested billions of dollars in acquiring promising products across multiple therapeutic areas, including oncology, neuroscience, and pain management. Not all of the company's initiatives will pay off, but at least some of them should -- and as Eli Lilly launches new products in other areas, it will help decrease its reliance on its diabetes and obesity lineup. Let's consider just one asset Eli Lilly added to its pipeline through the acquisition of a biotech company, Morphic Holdings, for $3.2 billion in cash: MORF-057.

This is an investigational oral medicine for inflammatory bowel diseases (ulcerative colitis and Crohn's disease), a large, multibillion-dollar market where many therapies are administered via subcutaneous injections or intravenously, making an oral option particularly attractive, all else being equal. Eli Lilly also saw the potential for combination treatments for MORF-057 -- perhaps with its already approved therapy in the same niche, Omvoh, that could target patients with severe cases. This could be an important medicine for Eli Lilly's future, and it is just one of the many exciting pipeline programs at its disposal. Eli Lilly is always looking for the next big thing. That's another reason to buy the stock.

3. An underrated dividend stock

Eli Lilly has been one of the more impressive growth stocks in the healthcare sector in recent years, but it's also a great pick for income-seeking investors. True, the company's dividend yield isn't that impressive at about 0.6%. But Eli Lilly's shares have risen rapidly in the past decade, which partly explains its low yield. The company's payouts have also grown significantly, to the tune of 239% over the past 10 years. Eli Lilly looks likely to maintain healthy dividend growth for the foreseeable future, which is yet another reason to invest in the company and hold onto its shares for a while.

Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool has a disclosure policy.