Eli Lilly is the best of both worlds — a recession-resistant stock with major growth potential

Published Wed, Jan 11 20234:36 PM ESTUpdated Wed, Jan 11 20234:44 PM EST

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

The year ahead is pivotal for Eli Lilly (LLY) as the pharmaceutical giant looks to advance drugs in its stellar pipeline. Executives detailed reasons for optimism at a major industry gathering this week. "We're looking at another unprecedented year for Lilly," CFO Anat Ashkenazi said Tuesday night at JPMorgan's annual health-care conference. "A strong year ahead of us in terms of potential launches and top line growth," she added. "It's a year of investment, as well." It's projected to be a record year for both Lilly's revenue and research and development (R & D) expenses. It's a dynamic that, in many ways, embodies the Club's thinking on Eli Lilly, one of our 10 core holdings . It's the best of both worlds for investors. On the one hand, it's a defensively oriented health-care company that can work in today's challenging market environment, with an underlying business that's resilient even in an economic slowdown. Lilly announced full-year guidance last month, forecasting 2023 sales between $30.3 billion to $30.8 billion, up about 6% at the midpoint compared with projected revenue for last year. Lilly is expected to report fourth-quarter 2022 financial results in early February. Revenue is expected to grow even faster, in the mid-teens on a percentage basis, for the company's core business, which includes newly launched products like tirzepatide, a type 2 diabetes treatment marketed under the brand name Mounjaro. Tirzepatide has also shown immense potential in studies to combat obesity. On the other hand, Eli Lilly is also an exciting innovation story, partially reflected in its increased R & D spending — forecasted in that December update to be between $8.2 billion to $8.4 billion in 2023, up around 15% at the midpoint compared with estimated 2022 levels. This spending is required to advance its drug pipeline — a key piece of the Club's investment thesis — and boost revenue for years to come. Indeed, as Ashkenazi explained at the JPMorgan conference, the largest driver of R & D expenses is late-stage trials known as Phase 3 studies. Lilly has a lot on tap in that department this year. This includes the expected start of Phase 3 trials for orforg