2 Top Growth Stocks to Buy on the Dip

Over the past five years, Eli Lilly (NYSE: LLY) and Regeneron Pharmaceuticals (NASDAQ: REGN) have been among the better-performing healthcare giants. However, it turns out that gravity is real for them, too -- both have lost momentum over the past few months. It was bound to happen eventually. No corporation can have an uninterrupted upward path, no matter how impressive it is.

The question for investors is this: Has something changed regarding Eli Lilly or Regeneron's thesis, or is the recent dip an excellent opportunity to invest in both drugmakers? My view is that it's the latter, and here is why.

1. Eli Lilly

Eli Lilly has been making quite a bit of noise thanks to its work in diabetes and obesity. Investors turned on the company, though, after its third-quarter earnings. Why? The pharmaceutical giant failed to match expectations. Its revenue increased by "only" 20% year over year to $11.4 billion.

Eli Lilly's newest medicines for diabetes and obesity, Mounjaro and Zepbound, respectively, apparently didn't live up to the hype during the period. Mounjaro's sales came in at $3.1 billion, up 121% compared to the year-ago period. Zepbound, which earned the nod in November 2023, generated $1.3 billion in sales. Those are blowout results for almost any other drugmaker.

But Eli Lilly's case is different. First, the company's shares are richly valued, so investors' expectations are sky-high. See the chart below. For context, the average forward price-to-earnings for the healthcare industry is 18.3.

LLY PE Ratio (Forward) data by YCharts

Second, Eli Lilly cut its revenue and earnings per share guidance for the fiscal year 2024, something else investors don't like. That explains the post-earnings sell-off.

But all of that should mean very little to long-term investors. The pace that Mounjaro and Zepbound are on is incredible, and there is more where that came from, with Eli Lilly set to earn more indications for tirzepatide, the active ingredient in both medicines.

Earlier this year, tirzepatide produced positive phase 3 results in treating sleep apnea and in reducing the risk of type 2 diabetes in overweight or obese prediabetic patients. Label expansions across both indications should come within the next 12 months. Tirzepatide is undergoing several other studies. Further, Eli Lilly's pipeline features other promising candidates, especially in weight loss.

Beyond its core areas of expertise, Eli Lilly has recently earned other important approvals, including Alzheimer's disease treatment Kisunla, cancer drug Jaypirca, and ulcerative colitis therapy Omvoh. Eli Lilly's lineup and pipeline look too strong to disappoint in the long run. So, the company's recent dip is a great opportunity for patient investors.

2. Regeneron

Regeneron's most significant issue in recent years has been various challenges to Eylea, a medicine for wet age-related macular degeneration that is among its top growth drivers. It had to deal with competition for Eylea from Roche's Vabysmo. Regeneron also recently lost a legal battle with Amgen when a court of appeals allowed the latter to launch a biosimilar while a trial between the two companies over patent infringement continues.

The war between these two biotech giants isn't done yet, and that was a major blow to Regeneron. However, there have been some positive developments for the company on this front. It earned a high-dose (HD) formulation of Eylea in 2023 that decreased the number of injections per year without sacrificing efficacy, a major selling point for many patients.

The HD version of Eylea is helping deal with the challenge from Vabysmo. In the third quarter, Regeneron's total revenue increased by 11% year over year to $3.72 billion. Combined U.S. sales of Eylea and Eylea HD grew 3% year over year to $1.5 billion, with the HD formulation accounting for $392 million of that total; not bad for a medicine launched just a year ago.

Further, Regeneron's most important medicine, eczema treatment Dupixent, is still flying high. Worldwide sales of Dupixent in the third quarter -- recorded by Sanofi, with which Regeneron shares the rights to the medicine -- came in at $3.82 billion, 23% higher than the prior-year quarter. Dupixent recently earned a key label expansion in chronic obstructive pulmonary disease, an indication that should add several billion dollars to its annual sales.

Lastly, Regeneron is an innovative company. One of the drugmaker's candidates, trevogrumab, is being developed to treat muscle atrophy that sometimes comes with weight loss drugs like Zepbound. Elsewhere, it is working on a therapy for genetic deafness that has already cured two patients in a phase 1/2 study.

Regeneron's fight with Amgen might not have a favorable outcome for the Eylea maker, but given its existing lineup spearheaded by Dupixent, its rich pipeline, and its impressive track record, long-term investors can still count on it to deliver strong results. That's why its shares are worth buying on the dip.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Amgen and Roche Holding AG. The Motley Fool has a disclosure policy.