Want to Buy the Dip on Eli Lilly? Consider This Low-Cost Vanguard ETF

Like many growth stocks, drugmaker Eli Lilly (NYSE: LLY) is down sharply year to date. Its 15.6% decline is weighing on the healthcare sector, as research by The Motley Fool shows that Lilly is by far the most valuable U.S. healthcare company.

Below we'll look at why it's under pressure, and consider a low-cost exchange-traded fund (ETF) that has a significant weighting in Eli Lilly.

Image source: Getty Images.

Weight loss is Eli Lilly's gain

Eli Lilly makes many different medicines to treat conditions such as Alzheimer's disease, autoimmune diseases, cancer, diabetes, obesity, skin conditions, migraines, and sleep apnea. But no category is driving the stock more than its GLP-1 drugs: Mounjaro (for type 2 diabetes) and Zepbound (for weight loss management).

In 2025, Mounjaro and Zepbound accounted for a combined 56% of total revenue, compared to 36.7% in 2024. But concentrated growth is a double-edged sword, as Lilly is now more vulnerable to pricing pressure, competition, and decisions by the Food and Drug Administration in a single category.

The stock has run up a lot in recent years, with Eli Lilly's market cap briefly exceeding $1 trillion. Lilly's valuation is heavily dependent on maintaining its industry-leading position in the weight-loss drug space; it currently has a lofty price-to-earnings (P/E) ratio of 40.1. The forward P/E, which assumes high growth, is more reasonable at 26.1. But there's no denying that the company's earnings are driven by weight loss drugs -- which adds risk, but also potential reward.

If demand continues, Eli Lilly will look cheap in hindsight, given its breakthrough growth rate. But there's also a risk that earnings dramatically slow or even turn negative if there's a cyclical slowdown or better weight loss alternative -- which would likely take a sledgehammer to the stock price.

An ETF built around Eli Lilly

The Vanguard Healthcare ETF (NYSEMKT: VHT) is arguably a better buy than Eli Lilly. It's a good value. It has diversified exposure to a variety of healthcare stocks, yet still holds a sizable 12.6% weighting in Lilly, its largest holding. The fund holds over 400 stocks, including biotech and pharmaceutical companies, healthcare equipment makers, and insurance companies.

Owning the entire sector rather than going all in on Eli Lilly is a catch-all way to benefit from the industrywide boom in weight loss drugs, rather than banking on Lilly protecting its market share against competitors. The ETF now sports a P/E of 25.3 and a yield of 1.6% -- which is a slightly better value and provides higher income compared to the Vanguard S&P 500 ETF's 25.8 P/E and 1.1% dividend yield.

The Vanguard Healthcare ETF has a mere 0.09% expense ratio. While that's higher than the 0.03% charged by the Vanguard S&P 500 ETF, it's still less than $1 in fees per $1,000 invested.

Eli Lilly could still be a good buy for growth-focused investors who believe in the competitive advantages of its drug portfolio. But investors seeking more balance are better off buying the Vanguard Healthcare ETF.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.