Thinking About Investing in GLP-1 Stocks? Here Are 3 Things You Need to Know

Healthcare companies have been feverishly working on developing GLP-1 weight loss products in an effort to cash in on what's turning out to be a massive gold rush in the sector. Companies big and small have GLP-1 drug candidates in development that, if successful, could be game changers for their businesses. It could put small stocks on the map, and for larger companies, it could mean an improvement in their growth rates.

It may seem exciting to invest in GLP-1 stocks for their future growth potential, but there are important things to consider before you dive in. Here are three key things you should know about GLP-1 stocks, to help you decide whether it can be a good area for you to invest in.

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The market is massive, but estimates have been coming down

Given the potential for weight loss drugs to improve the overall health of patients and their wide-ranging benefits, analysts have been understandably bullish on the space. But perhaps they have been too excited about it.

Goldman Sachs recently trimmed its forecast for the anti-obesity drug market. It projects that the global market will be worth $95 billion by the end of the decade, which is a sizable decrease from the $130 billion it was previously forecasting. It's still massive, but it's a sign of just how much hype there has been around GLP-1 drugs. And with concerns about side effects and people gaining weight back after they stop using the drugs, it's possible there may still be too much hype right now.

Competition is likely to ramp up

Today, Eli Lilly (NYSE: LLY) looks to be the early leader in the GLP-1 space, as it has been experiencing tremendous growth. Its valuation is around the $1 trillion mark as its effective GLP-1 drugs have enabled it to generate fantastic results and attract many growth investors in the process. Meanwhile, it hopes to have an approved pill later this year, which could enhance its growth prospects even further.

But the big question is how well its growth will hold up in the future, as other GLP-1 drugs inevitably enter the market. Pfizer, Roche, and other big names in healthcare have invested in GLP-1 drugs and could have products of their own that may take market share in the not-too-distant future. The end result may be a potentially fragmented market.

The preferred GLP-1 drug may be the one with the fewest side effects

Many GLP-1 drugs that are approved and in development offer comparable weight loss, often in the neighborhood of 15% to 20%. That's why investors should pay close attention to drugs that have the least concerning side effects, and that may be most tolerable for patients, as those could prove to be the biggest winners in the market.

If you're unsure of which GLP-1 stocks to buy, the safest option may be to go with either Eli Lilly or Novo Nordisk, which are already big players today and which have approved GLP-1 drugs in their respective portfolios.

David Jagielski, CPA has positions in Novo Nordisk. The Motley Fool has positions in and recommends Goldman Sachs Group and Pfizer. The Motley Fool recommends Novo Nordisk and Roche Holding AG. The Motley Fool has a disclosure policy.