Buying LLY at a Discount? You Are Getting Paid to Do It
At about $1017.97 a share, Eli Lilly (LLY) is trading about 8.1% below its 52W high.
Do you think LLY stock is a good long-term bet at current levels? What about at a 30% discount at about $710 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
8.6% annualized yield at 30% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 3/19/2027, with a strike price of $710
- Collect roughly $3,415 in premium per contract (each contract represents 100 shares)
- That’s about 4.6% annualized yield on the $71,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 8.6%
- And you give yourself a chance to buy LLY stock at deep discounted price of $710
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
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Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| LLY stays above $710 | You keep the full $3,415 premium – 4.8% extra income over the next 382 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| LLY closes below $710 | You’ll be obligated to buy 100 shares at $710. But thanks to $3,415 premium, your effective cost basis is just $675.85 per share – a roughly 34% discount from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell LLY Stock or check Eli Lilly Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds.
Why Hold LLY Stock Long-Term
Eli Lilly’s dominance in the high-growth obesity and diabetes markets, driven by its highly effective GLP-1 drugs, provides a strong secular tailwind. The company’s wide moat is evidenced by its pricing power and rapidly growing market share. The aging global population and increasing prevalence of chronic diseases create a durable long-term demand for its products. Even with potential competition, the sheer size of the addressable market allows for sustained growth. Therefore, we would be comfortable owning this compounder for 5+ years if assigned.
Competitive Advantage
We classify LLY’s economic moat as WIDE, with the primary source being Pricing Power
- Eli Lilly demonstrated pricing power by increasing the UK list price for its blockbuster drug Mounjaro, with the highest dose rising from £122 to £330, to align with other European markets.
- The company’s key drugs, Mounjaro and Zepbound, have achieved ‘astronomical growth’ and are on a trajectory to surpass competitors, with Mounjaro sales projected to reach $22.8B and Zepbound $18.1B in 2026.
- Eli Lilly’s market share for incretins grew to 60.5%, with Mounjaro and Zepbound contributing to a 56% share of the company’s total revenue, indicating strong market demand and share gains from competitors.
- Patient-driven demand for GLP-1 therapies has surged, with social media mentions and searches for obesity treatments increasing dramatically, solidifying the brand’s ‘mindshare’ as a default standard.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 27.5% (Source: Healthcare 150)
Secular Trend: Aging Population & Rise of Chronic Disease
Key Risks: The primary risks include lawsuits alleging severe gastrointestinal side effects from GLP-1 drugs and regulatory scrutiny over compounded versions of these medications.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: Given the significant and rapidly growing revenues from its blockbuster drugs, the risk of bankruptcy is extremely low. The company is in a strong financial position to fund operations, R&D, and shareholder returns.
If you are not comfortable with options or stock-specific trades, Portfolios are the way to go as they can protect and grow wealth even better.
Smart Investing Begins With Portfolios
Stocks can jump or crash but long term success comes from staying invested. The right portfolio helps you ride gains and cushion single stock drops.
Why settle for average market returns? The Trefis High Quality (HQ) Portfolio invests in a diverse group of 30 stocks that have collectively delivered stronger upside with reduced volatility compared to the broader indices. Discover the methodology behind these smoother, higher returns by checking the HQ Portfolio performance data.