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On the SPOT blog (08/16/2022) [L..]

Updated: Aug 30, 2022

US manufacturing production seemed to have increased in July with significant increase in motor vehicles' production. That might be a good sign for automotive industry that appeared to have fallen short in meeting the demand. In earnings news, Walmart and Home Depot reported reasonably good results. These positive news might have helped Dow and S&P500 indices to finish in green today.

Let's discuss Eli Lilly and company (ticker LLY) today as it had appeared in discounted zone following its quarterly results. This global pharmaceutical giant discovers, develops and markets drugs for diabetes, oncology (lungs, mesothelioma, gastric, colorectal, head and neck, thyroid, breast etc cancers.), arthritis, spondylitis, osteoporosis, depressive disorder, anxiety disorder, schizophrenia, bipolar disorder etc. As we can see, LLY seems to have a good breadth of products to address wide range of disease. You might have seen ads on TV for some of its products such as Jardiance, Trulicity etc. These are well-known brands. Trulicty, Taltz appear to be in high demand. LLY also has a good buildup in pipeline for Type 2 diabetes, Alzheimer's disease and cancer. Its revenue seems to have grown compared to previous year. Its balance sheet seems reasonably good as it appears to have strong free cash flow, cash/equivalents of > $2.7B and debt > $16B. LLY pays dividend and has a share repurchase program. These are some of the reasons why we have this stock on our watchlist. Let's checkout some of the potentially -ve points for this stock,

In its last reported quarter, LLY missed earnings estimates and guidance might seem to be soft. Given that, it seems to have a high PE and PEG. Some of its products have lost exclusivity (e.g. Cymbalta, Alimta) and are facing generic competition. LLY might be seeing pricing pressures (including its high selling product Trulicity) in the US and might have seen price-cuts in some international markets. So far, Trulicity seems to have outperformed but many of its products (including insulin products) have underperformed recently. Pandemic could still present uncertainties to its top line. If there are any setbacks in clinical trials for its drugs in the pipeline then that could have a -ve impact on its future revenue projections. I noticed a recent downgrade and mixed price revisions. Let's checkout gScores now for insight.

LLY's gScore today is 0.32 and micro-gScores are listed below:

Price

-7/10

RSI

2/10

Bollinger bands

5/10

MACD

7/10

KF

3/10

OLS

-5/10

MFI

3/10

Stochastic

2/5

Options data

10/10

Analysts' recommendations

10/10

Sentiment score

2/5

  • Price micro-gScore is very -ve. Price fell today and the number of consecutive days that it has been falling is still in the bottom quantile. Current price appears to be in the top quantile of its 52-week range

  • RSI is showing below average level and falling

  • Current price is near the middle Bollinger band

  • MACD shoed sell signal when the price was $320.723 and the number of days in this -ve trend appears to be in the top quantile

  • KF is showing that current price is slightly below the "filtered" average

  • OLS is a good fit for this stock's chart. Its 1Y and 5Y LS lines have a +ve slope. This gives me confidence in using dollar cost averaging for building a position in this stock. Current price appears to be somewhat below 1Y "expected" average but significantly above the 5Y "expected" average

  • MFI is showing below average level and rising

  • Stochastic is showing below average level

  • Options data looks great. Short ratio is < 2 and its calls/puts activity with respect to current price appears to be bullish

  • Analysts' recommendations looks very good (albeit, I did notice a downgrade and mixed price revisions recently)

  • Sentiment score is somewhat +ve

So, LLY appears to be in the "buy cycle" following its visit to the discounted zone. I think it has a very strong long-term potential but might present volatility in the short-term. It seems to be liked by lot of industry analysts so I'd look for better Price, RSI, KF and OLS micro-gScores to start building a position for the long-term. If/when it has these favorable micro-gScores, I'd build my position in small quantities over rest of the year with an intent to hold it for multiple years. You would obviously decide for yourself.

Below are the technical analysis charts for LLY as generated by Gammath™ SPOT:



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