LLY - 1 Stock I'd Drop From the Magnificent Seven and 1 I'd Add
2024-03-18 19:00:00 ET
The “Magnificent Seven” has become all but a household name over the last few years. Originally coined by CNBC’s Jim Cramer, they include this list of stocks.
1. Microsoft
2. Apple
3. Nvidia
4. Alphabet
5. Amazon
6. Meta Platforms
7. Tesla ( NASDAQ:TSLA )
This group of stocks has certainly been magnificent. Since 2023, each has grown in share price. Yet, one certainly has been an outlier in the last few months.
One of these companies stands out as a clear contrast to the others. In fact, I believe it warrants total removal from the group, with the replacement of another stock that’s merely a runner-up right now. So, which is it?
Tesla needs to go
It’s been years of volatility for Tesla stock, and this year hasn’t been any different. Shares of Tesla stock are now down 34% as of writing year to date. And last week, it pushed Boeing out of the race for worst-performing stock so far in 2024.
But it’s not just a share price drop that has me coming for Tesla stock. While it has seen revenue grow over the last year by about 19%, this has been in stark contrast to prior years. For example, there was a peak in revenue in December 2021, when it hit 70.7% growth year over year.
The company is now potentially nearing negative revenue growth. While it hasn’t dipped into that yet, it looks likely. That comes in large part to the electric vehicle market becoming a more competitive environment.
China continues to be the largest producer and consumer of electric vehicles. And that’s a market Tesla stock is having difficulty penetrating, seeing a drop in the country during recent earnings. Furthermore, the high cost it was able to charge in the last few years for these vehicles has dropped to keep up with the competition.
So, with so many issues lined up, Tesla stock deserves to be kicked out. But which stock should replace it?
Eli Lilly is a healthy choice
In its place, I would add Eli Lilly and Company ( NYSE:LLY ). Of course, compared to the other “Magnificent Seven,” it’s clearly an odd one out. While the rest are solidly in tech stock territory, Eli Lilly stock is in the health and pharmaceutical sector. So, why buy it?
Well, let’s first look at how shares have performed. Whereas Tesla stock has been dropping, Eli Lilly stock is solidly up 27% year to date. It now holds a market cap of US$717.5 billion, which actually puts it ahead of Tesla’s US$520.8 billion.
Furthermore, unlike the cyclical nature of these other companies, and indeed their popularity, Eli Lilly stock is a strong long-term choice. The company invests heavily in research and development, creating a strong pipeline of new and innovative drugs. This has helped create consistent future growth.
What’s more, it offers a diversified product portfolio, including oncology, diabetes, and neuroscience. This helps the company from relying too heavily on one product. Overall, the stock is quite strong, with a healthy balance sheet and strong cash flow, allowing it to continue innovating and acquiring.
Analysts are bullish on the future of the company, with a compound annual growth rate of around 7% to reach its trillion-dollar potential market cap. What’s more, earnings per share could grow at a clip of 34% over the next five fiscal years.
Sure, the “Magnificent Seven” is a strong group. But by bringing in Eli Lilly stock and cutting Tesla stock, I believe it could be made even stronger.
The post 1 Stock I’d Drop From the “Magnificent Seven” and 1 I’d Add appeared first on The Motley Fool Canada .
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe has a position in Microsoft. The Motley Fool recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy .
2024