The healthcare sector is home to many excellent, innovative corporations that have made many investors richer. However, no healthcare company has reached a market capitalization of $1 trillion. Perhaps that's not so surprising. After all, very few companies are part of this elite club.
But it's only a matter of time until one healthcare stock finally hits that goal, so which one will do it first? My money is on Eli Lilly (LLY +0.80%). Let's find out why.
Meet the candidates
Let's start with a list of some healthcare companies that have a chance at joining the trillion-dollar club within, say, a decade. These are the largest ones in the world. Eli Lilly sits on top, with a market cap of about $610 billion. Next comes insurance specialist UnitedHealth Group, valued at roughly $482 billion -- or over $100 billion less than Eli Lilly. Rounding up the top three is another leading drugmaker based in Denmark, Novo Nordisk, with a market cap of $470 billion. Johnson & Johnson ranks fourth with a business worth $390 billion, while Merck completes the top five at $300 billion.
NYSE: LLY
Key Data Points
Of course, there is always the possibility a much smaller healthcare company will overtake all of these and land at a valuation of $1 trillion first. Still, given that Eli Lilly is currently the largest, all it has to do is perform at least as well as all the ones within striking distance while hoping none outside this small group somehow skyrocket to the top. Let's put that second possibility aside for now.
Can any of Eli Lilly's direct competitors perform much better than it will before it reaches $1 trillion? Starting with Merck, the company's main growth driver for a long time has been its cancer drug Keytruda. While it will continue performing well for a bit longer, Keytruda is set to face a patent cliff by 2028. Merck is working to resolve this problem, but until the company's post-Keytruda plans are much clearer, the market is unlikely to reward the stock by bidding it up significantly.
Johnson & Johnson is another great company, especially for dividend investors. However, the drugmaker's legal problems should continue weighing on the stock. That doesn't mean it isn't worth holding shares of Johnson & Johnson, but the upside is somewhat limited compared to what it would have to do to overtake Eli Lilly. That leaves three stocks in the running.
Eli Lilly for the win
Eli Lilly and Novo Nordisk have a lot in common. They operate in the same industry and are the two leaders in the markets for diabetes and obesity drugs. However, the former has an edge over its longtime foe. Eli Lilly's newest medicine for diabetes/obesity, Mounjaro (marketed as Zepbound in helping to manage weight), seems to be more effective than Novo Nordisk's Ozempic and is projected to become perhaps the best-selling therapy in the history of the industry.
Furthermore, Eli Lilly has a much more diversified source of revenue. Novo Nordisk relies almost entirely on its diabetes and obesity work, which is not the case for its competitor. Eli Lilly still has several important therapies in other areas in the pipeline. It is currently awaiting approval for the Alzheimer's disease treatment donanemab, which is almost destined to become a blockbuster.
In short, it will be difficult for Novo Nordisk to outperform Eli Lilly in terms of financial results and stock market performances from here on out. That leaves just one company in the running: UnitedHealth Group. It is harder to compare these two behemoths that operate entirely different businesses. UnitedHealth is an excellent stock in its own right. However, once again, Eli Lilly starts with an edge of more than $100 billion in market value, which isn't easy to overcome.
Furthermore, while analysts see UnitedHealth Group's earnings per share (EPS) growing at an average of 11.6% for the next five years, Eli Lilly's estimated EPS growth in the next half a decade is more than twice that at 28.7%. At its current valuation, Eli Lilly needs to register a compound annual growth rate of 10.4% to become a trillion-dollar company in five years. In my view, that's well within the company's powers. And once it accomplishes that goal, the drugmaker won't stop.
The bottom line: Eli Lilly is an excellent stock to buy and hold today.
