Getting to a $1 trillion market cap is a huge achievement for a company, as only the best of the best can join that club. Not only do companies need to generate strong results, but investors also need to be optimistic about their future growth for their valuations to reach such highs. Two stocks that aren’t at $1 trillion just yet but are the closest to that mark today are Berkshire Hathaway (BRK.A 0.77%) (BRK.B 0.86%) and Eli Lilly (LLY -0.03%).
Berkshire Hathaway’s $890 billion valuation is around $160 billion more than what Eli Lilly is worth today (approximately $730 billion), but in a volatile market, things can change quickly. Is Berkshire a lock to be the next $1 trillion stock, or does Eli Lilly have a realistic shot of getting there first?
Just one number tells you these stocks have taken very different paths
One number which highlights the difference in excitement around these stocks is the price-to-earnings (P/E) multiple. At more than 130, investors are paying a massive premium for Eli Lilly’s stock. Meanwhile, Berkshire looks like it may be incredibly undervalued, with its P/E multiple a lowly 9. Berkshire invests in many different businesses, but insurance is core to its operations. That is, unfortunately, not a terribly exciting business for many investors, even if billionaire investor Warren Buffett is the face of it.
Over the past 12 months, shares of Eli Lilly have soared by 130% while Berkshire’s stock has risen by 37%. Both stocks have outperformed the S&P 500, which is up 32% over that period — but while Berkshire stock has merely beaten the index, Eli Lilly has skyrocketed past it.
Eli Lilly certainly has the hype factor, with investors clearly willing to pay a significant premium for the earnings growth that may lie ahead for the business.
Could GLP-1 excitement send Eli Lilly past Berkshire?
The big catalyst for Eli Lilly over the past year has undoubtedly been the excitement surrounding tirzepatide, which is the active ingredient in two of its approved drugs — Mounjaro (for diabetes) and Zepbound (for weight loss). Tirzepatide is a glucagon-like peptide 1 (GLP-1) agonist which helps curb appetite, which, in turn, enables patients to lose weight.
And it’s not just a little weight. Clinical trials have shown that people using tirzepatide lost an average of 26.6% over an 84-week period, when also making lifestyle changes. Zepbound has the potential to be one of the hottest weight-loss drugs ever. This year, multiple analysts believe it will generate more than $2 billion. But in the long run, the upside could be in the tens of billions of dollars in a weight-loss market that Goldman Sachs believes could top $100 billion.
As Zepbound grows in popularity and potentially becomes a hot trend on social media like Ozempic (which isn’t approved for weight loss, though many people have been taking the diabetes medication for that reason), there could be even more bullishness about the stock. And if that happens, it wouldn’t be a surprise to see Eli Lilly’s stock soar past Berkshire’s.
Which stock is the better buy today?
Big gains haven’t been the norm for Berkshire Hathaway stock. While it’s been doing fairly well over the past 12 months, expecting large gains (over 20%, for example) may be a bit too optimistic given that it isn’t your typical growth stock focused on aggressive expansion.
I suspect investors have been piling into Berkshire shares lately, partly due to the safety and stability that the stock offers. But as interest-rate cuts take place, that may change and more money could flow into higher-priced stocks such as Eli Lilly. It may seem like a long shot — but I think Eli Lilly can get to $1 trillion first, despite Berkshire’s sizable lead.
More importantly, Eli Lilly has a growing presence and strong results in the anti-obesity market. In the long run, it’s the better option for growth-oriented investors.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Goldman Sachs Group. The Motley Fool has a disclosure policy.
