There's a lot to be said for consistency. Some stocks may be big winners in one year but stink the next. Others, though, deliver solid returns year in and year out.
You might think that most of the 40-plus companies with market caps of $200 billion or more would fall into the latter category. Nope. Only two of those mega-cap monster stocks have risen in each of the last five years (including so far in 2023).
Warren Buffett strikes again
The market sell-off in 2022 eliminated most mega-cap stocks from the five-year consistent winner club. For example, two of the strongest performers so far in 2023 -- Nvidia and Tesla -- plunged by more than 50% last year.
However, Warren Buffett was able to zig while most zagged during the bear market. Shares of his Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) eked out a 3% gain in 2022, as well as a 2% increase in 2020. In 2019, 2021, and 2023 year to date, though, the giant conglomerate turned in double-digit percentage gains.
Berkshire Hathaway's diversification stands out as one key factor behind its consistent success. It might be best known for its insurance businesses, but its more than 60 subsidiaries span a wide range of industries.
It also doesn't hurt that Buffett has maintained a large cash stockpile in recent years. Investors know that market downturns can actually work to Berkshire Hathaway's advantage over the long run when the Oracle of Omaha capitalizes on such opportunities to buy great stocks on the cheap.
BRK.B Cash and Short Term Investments (Quarterly) data by YCharts.
Putting the big in big pharma
The only other current mega-cap stock to have delivered positive returns in each of the last five years didn't have a market cap of $200 billion or more during most of that period. Eli Lilly (LLY 1.19%) surpassed the threshold in 2021.
Today, though, Lilly ranks as the biggest pharmaceutical company in the world, with a market cap of around $530 billion. Unlike Berkshire Hathaway, the big pharma stock didn't have to squeak by in any of the last five years. Eli Lilly delivered double-digit percentage gains each year, including an impressive jump of more than 50% so far in 2023.
How did Lilly do it? For one thing, it boasts a strong lineup of products. In particular, Lilly's diabetes drug Trulicity, autoimmune-disease drug Taltz, and breast cancer drug Verzenio have generated exceptional sales growth in recent years.
Investors also realized that Lilly's pipeline was chock-full of promising programs. No candidate stood out more than Mounjaro, which won Food and Drug Administration (FDA) approval as a treatment for type 2 diabetes in 2022.
Are they buys?
Of course, the fine print you'll find in mutual fund prospectuses about past performance not being indicative of future results applies to Berkshire Hathaway and Eli Lilly, too. There's no guarantee that either stock will continue its winning ways.
Some investors could be concerned about their valuations, especially Lilly's. The big drugmaker's shares currently trade at a forward earnings multiple of nearly 44. Berkshire isn't exactly cheap either, with its shares trading at 19.7 times expected earnings.
However, Buffett is (as usual) exercising discipline at a time when stocks, in general, are sporting frothy valuations. He was a net seller of stocks in the second quarter, and the ones that he was buying offer solid risk-reward propositions.
As mentioned earlier, Buffett has also amassed a huge cash stockpile for Berkshire Hathaway that he can put to good use when stock valuations are more attractive. Meanwhile, its many subsidiary businesses continue to perform well.
Lilly's Mounjaro appears to be on track to become one of the best-selling drugs of all time. The company is waiting for FDA approval of the drug as a treatment for obesity. One analyst projects that Mounjaro could achieve peak annual sales of more than $68 billion. Lilly also has other potential blockbusters likely on the way with Alzheimer's disease drug candidate donanemab and atopic dermatitis drug lebrikizumab.
I think that both of these mega-cap monster stocks are solid picks to buy right now for long-term investors. And I predict that Berkshire Hathaway and Eli Lilly will keep their streaks of positive annual returns going.
