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Where to Invest $10,000 in a Bear Market

By Prosper Junior Bakiny - Sep 24, 2021 at 11:30AM

Key Points

  • Eli Lilly boasts several drugs that generate well over $1 billion in sales every year.
  • Moderna's business extends beyond its famous COVID-19 vaccine.

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For now, both of these high-quality companies may be a bit overvalued, but that could change.

Bear markets happen on average once every 3.6 years, according to data from Hartford Funds, the mutual fund company. That makes these events relatively common -- and while that can be scary for investors, there is a silver lining. In 100% of the cases, a bull market followed a bear market. That means these otherwise difficult market downturns present excellent opportunities to buy shares of great companies on the dip.

No one knows when the next bear market will happen, but it pays to be ready to pick up stocks from the discount bin when it does. Read on to find out why purchasing shares of Eli Lilly ( LLY 0.30% ) and Moderna ( MRNA -13.49% ) could be an excellent way to spend a spare $10,000 during the next bear market. 

LLY Chart

LLY data by YCharts

1. Eli Lilly 

Eli Lilly is one of the few pharma giants that have handily outperformed the market in the trailing-12-month period. The drugmaker's shares are up about 50% in the past year compared to gains of 31% for the S&P 500. By comparison, the SPDR S&P Pharmaceuticals ETF -- an industry benchmark -- has climbed a meager 3% during the same period. 

With the economy slowly recovering from the pandemic, Eli Lilly's business is booming. During the second quarter ended June 30, the company's revenue jumped 23% year over year to $6.7 billion. Excluding the effects of coronavirus-related dynamics, Eli Lilly's sales rose 12%, which is still impressive for a pharmaceutical company of this size.

Smiling doctor and patient.

Image source: Getty Images.

Several drugs with fast-growing sales continue to push Eli Lilly's revenue upward. During the second quarter, diabetes medicine Trulicity saw sales jump 25% year over year to $1.5 billion while immunosuppressant Taltz achieved $569 million, 44% higher than the year-ago period.

Other notable products in Eli Lilly's lineup include cancer drugs Verzenio and Alimta and diabetes medicines Humalog and Jardiance. The company also boasts promising pipeline candidates, among them: Basal insulin-Fc, a proposed once-a-week insulin product that could be a game changer; and donanemab, a potential drug for Alzheimer's disease.

It's little wonder the company's shares have gotten a lot more expensive -- at least, going by traditional valuation metrics. Eli Lilly's forward price-to-earnings ratio of 29 is much higher than the industry average of 14.

Yet, a bear market could make Eli Lilly's shares more attractive. In addition to the company's solid lineup and promising pipeline, expect it to continuously add new products to its portfolio and replace those that lose patent protection, thereby keeping its top and bottom lines growing.

If the company's stock drops following a market downturn, it would be wise to consider picking up shares on the dip.

2. Moderna

Moderna has had an even more fantastic run than Eli Lilly recently, but the company also seems to be trading at a steep valuation. Moderna's forward P/E of 14 is higher than the biotech industry's 11. It's also difficult to justify the company's market cap of $180 billion as of this writing. Sure, it developed one of the leading vaccines for COVID-19 and expects to generate $20 billion from it this year -- and at least $12 billion next year.

Still, a lot of Moderna's success is baked into its stock price already, and a correction may be overdue for the biotech. That said, it's hard to overlook the company's potential. First, there may be some upside left in the coronavirus vaccine market. The disease could continue popping up seasonally, making the need for vaccines permanent.

Doctor giving a shot to a patient.

Image source: Getty Images.

Second, Moderna's mRNA platform has great potential. The company's long-term strategy is to develop potent vaccines for viruses and illnesses with an unmet need, including several infectious diseases, cancers, and even HIV. The company is also looking to create vaccines that go after multiple pathogens.

One of the company's pipeline candidates is a vaccine aimed at both the flu and COVID-19. This product would become very popular if approved. Naturally, Moderna's programs won't register a 100% success rate. That's unheard of. But expect the company to deliver solid regulatory wins within the next couple of years.

Lastly, the biotech generated $9.1 billion in free cash flow during the past 12 months. The company has so much cash on hand that management recently approved a share buyback program. Moderna is looking to bolster its pipeline with its massive pile of cash, including the field of gene editing. It could acquire (or at least enter into a collaboration agreement with) a smaller biotech that focuses on gene editing, making its prospects even more exciting.

This biotech has a lot going its way. It's worth a closer look if its shares become more reasonably valued as a result of a bear market. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$246.33 (0.30%) $0.75
Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$265.33 (-13.49%) $-41.39

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