Space Exploration Technologies (SPCX -3.93%) has been perhaps the most talked-about stock on Wall Street since it completed the largest IPO ever in mid-June. Opinions on the company's prospects are divided. Some see an innovative company that has already disrupted the space travel industry and will continue to do so, and perhaps deliver life-changing returns in the process.
Others see an overvalued stock that could eventually succumb to an avalanche of headwinds. Still others, like myself, split the difference: SpaceX's future looks very promising, and it could post strong returns over the long run for those who purchase its shares at the right price, and its current price isn't it. Many companies could outperform the space company over the next five years. Here are two examples: Eli Lilly (LLY -1.37%) and Meta Platforms (META +0.71%).
Image source: The Motley Fool.
1. Eli Lilly
Eli Lilly has crushed broader equities over the past five years thanks to its breakthroughs in the GLP-1 market. The healthcare leader's tirzepatide is posting record-breaking sales: Just about four years after its approval, its annual revenue has already surpassed $30 billion. Eli Lilly is posting incredible financial results thanks to this product. In the second quarter, the company's revenue grew 48% year over year to $23 billion, while its adjusted earnings per share came in at $8.38, 33% higher than the year-ago period.
Eli Lilly is trading at 32.7x forward earnings, a valuation that resembles that of a smaller tech company more than a mature healthcare giant. The average forward price-to-earnings (P/E) ratio in the healthcare industry is currently 18.5. Eli Lilly's premium is justified, given how quickly its revenue and earnings have been growing, and the fact that they could maintain that momentum over the next few years.
NYSE: LLY
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Even with new competing weight-loss and diabetes product launches, Eli Lilly should have the strongest portfolio among its peers, as its products appear to be the most effective. Tirzepatide is only the tip of the iceberg. The drugmaker's retatrutide, an investigational medicine, posted impressive phase 3 clinical trial results and should be even more potent than Zepbound, especially for people with very high Body Mass Indexes for whom current weight-loss options are inadequate.
Eli Lilly has plenty of other products and pipeline candidates beyond the GLP-1 space, some of which look destined to generate well over $1 billion at their peak. Finally, Eli Lilly has a solid dividend program, and reinvesting dividends will boost returns over the medium term. It's another reason Eli Lilly could beat the market and outperform SpaceX.
2. Meta Platforms
Meta Platforms would be performing much better right now if it weren't investing so much money into its artificial intelligence (AI)-related ambitions. In the second quarter, the company's revenue grew by a healthy 28% year over year to $60.8 billion, but its earnings per share dropped 13% year over year to $6.18. Meta's forward P/E of 19.8 looks very reasonable for a tech company of its size and stature, but the market is worried that its AI investments won't lead to the kind of earnings growth it is hoping for.
I disagree. Meta's spending is deliberate, and in my view, it will, eventually, unlock massive monetization opportunities. AI has already improved the company's core advertising business. Now, the tech giant is reportedly in talks to launch a business where it will rent out excess AI computing capacity.
NASDAQ: META
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That would boost revenue and especially earnings and margins, since Meta won't be making significant additional investments to rent out computing power and may even do so at a significant premium over what it paid for it, as CEO Mark Zuckerberg noted. But that's only the beginning. Meta Platforms boasts 3.60 billion daily active users. This is a significant advantage, especially in the age of AI agents.
Meta could launch all sorts of AI-powered tools -- some free, perhaps some paying ones -- that will increase engagement on its platforms and generate meaningful new revenue streams. For instance, AI agents that could further boost return on ad spend for companies, highly personalized AI assistants for its users, or any number of other possibilities. Some may not believe in Meta's AI vision, but for those who do, the stock might be a bargain at current levels, unlike SpaceX, which appears to be trading at a significant premium.
