As my Dueling partner Ryan Fuhrmann pointed out, shares of Eli Lilly
As our Lilly Bull so eloquently put it, the pharma does have a moderately-sized pipeline and proven success in pumping out blockbuster drugs. But with compounds that account for more than half of its sales potentially losing patent protection in the coming years, not even Lilly will be able to surmount the revenue hit that it will be facing.
Stocks are priced based on forward guidance and prospects for growth, not on historical success. The problem with Eli Lilly is that in a couple of years it will be entering a phase of its operations where its continued performance is not likely to be maintained. This doesn't mean shares are going to zero -- far from it. Shareholders who buy into Lilly at this current valuation just won't have the same opportunity for stock price appreciation as those who bought shares in the late '80s or early '90s.
The 2.9% dividend that Lilly shareholders enjoy so much does sound tasty. But when you consider that since 1999 shares of Lilly have declined 20% and there's no reason for them to climb higher in the intermediate future, I recommend taking a pass on Lilly and looking at more exciting development stage drug stocks that don't have so much potential future sales already baked into their share price.