Here are two reasons why we could experience a market crash soon. First, stock valuations are at a 10-year high, as measured by the cyclically adjusted price-to-earnings (P/E) ratio. Second, there is a new strain of the virus that causes COVID-19 going around — and this new variant, called omicron, could set back our economic recovery.
Of course, none of these are conclusive reasons to think a downturn is on its way, but it doesn’t hurt to be prepared. One way of doing so is by having a list of stocks at the ready to scoop up on the dip. With that in mind, here are two excellent companies that could become even more attractive if there is a market downturn: Intuitive Surgical ( ISRG 1.36% ) and Eli Lilly ( LLY 0.51% ).
1. Intuitive Surgical
Intuitive Surgical is one of the leaders in the robotic-assisted surgery (RAS) market — thanks to its da Vinci Surgical System which allows physicians to perform minimally invasive surgeries. According to some estimates, only 3% of procedures are performed robotically. That’s despite the fact that minimally invasive surgeries come with several advantages for patients, including smaller incisions, less bleeding, faster recovery times, and less time spent in the hospital.
But the medical world appears to be catching on. The company ended the third quarter with 6,525 of its systems installed worldwide, up 11% from a year ago. And while competitors such as Medtronic and Stryker are lurking, Intuitive Surgical holds a nearly 80% share of this market — and is likely to continue doing so. That’s because of high switching costs. After dropping at least half a million dollars on the da Vinci system, healthcare facilities will be hesitant to jump ship.
Intuitive Surgical has significantly outperformed the market in the past couple of decades, and there are excellent reasons to believe it can continue doing so as its RAS devices gain greater adoption. Plus, a growing part of its revenue comes from selling instruments and accessories that go along with its da Vinci System.
Intuitive’s financial results continue to be encouraging. In the third quarter, revenue increased 30% to $1.4 billion over the year-ago period. About 54% of that came from sales of instruments and accessories. Sales in this segment depend on the number of procedures performed with its da Vinci system. In other words, as the RAS gains greater worldwide penetration, revenue should expand. In the latest quarter, earnings per share grew by 19.5% to $1.04.
Right now, with a forward P/E ratio of 68, the stock isn’t cheap. But a full-blown bear market could make the healthcare giant more attractively valued, thereby giving investors one more reason to buy shares of this no-brainer stock.
2. Eli Lilly
Eli Lilly has been one of the best-performing big pharma stocks this year. Unfortunately, the company’s shares have also gotten even more expensive than they already were. Eli Lilly’s forward P/E currently sits at about 30 — more than twice the average for the pharmaceutical industry. Should a market correction provide a more attractive entry point, here are some of the reasons why Eli Lilly is a solid buy-and-hold stock.
For one thing, five of the company’s products have reached blockbuster status so far this year (meaning they’ve had at least $1 billion in sales). And three of them — diabetes medicines Trulicity and Jardiance as well as immunosuppressant Taltz — continue posting strong top-line growth. Sales of Trulicity grew 28.7% year over year to $4.6 billion in the first nine months of the year while revenue from Taltz came in at $1.6 billion, 21% higher than the year-ago period. Sales of Jardiance jumped by 26% year over year to $1.1 billion.
These aren’t Eli Lilly’s only growth drivers, though. Cancer drug Verzenio and the company’s COVID-19 antibodies continue performing well, too. In this year’s first nine months, sales of Verzenio came in at $945.8 million, almost 50% higher than the prior-year period, while antibodies recorded $1.2 billion in sales. Overall revenue increased 18% to $6.8 billion, an excellent performance for a pharmaceutical giant.
In its latest quarterly update, Eli Lilly announced it was initiating a rolling submission to the U.S. Food and Drug Administration for accelerated approval of donanemab, a potential Alzheimer’s disease (AD) therapy. The company will likely face some hurdles in the AD market, but if donanemab is approved, it could add yet another exciting product to its lineup.
This potential medicine is just the tip of the iceberg. Eli Lilly boasts a long list of pipeline programs. So expect the company to expand its revenue base thanks to new approvals and label expansions — all of which should work wonders for profits and its stock price in the long run. Meanwhile, keep a lookout to buy shares of this pharma giant in the next market crash.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.