[NYSE: LLY]: The Fed has hinted at quantitative tightening this year. This means that the amount of liquidity will be greatly reduced, through higher borrowing rates among other methods. The goal is to prevent inflation in the economy. While this is good for stability, it could take steam off the stock markets since companies will borrow less for investments, and consumers will be more cautious in their spending habits. In this environment, the best stocks to go for are those that are relatively insured from the reduced consumer spending that is likely to follow. Big Pharma comes off as one industry that is unlikely to be unaffected.
One company in this category that is likely to maintain stability is Eli Lilly and Company (LLY). This company recently bought out LOXO, an oncology company, for $8 billion. Cancer treatment is an area that is likely to keep growing due to the increased incidence of cancer all across the world. This means that with the purchase of LOXO, its revenues are likely to keep rising all through the year and beyond. Besides, Eli Lilly is involved in other research, and healthcare will always be a priority for most people This means even in an environment of reduced liquidity, this company is likely to record positive numbers.
Besides, the company has enough resources to keep making investments without necessarily having to rely on leverage. That’s because, in spite of all the investments it has made so far, Eli Lilly still has a positive levered free capital of $2.96 billion. Besides, with the purchase of LOXO, the free cash flows for this company are likely to keep rising. In essence, in 2019 and all through into 2020, Eli Lilly’s cash flows are likely to stay strong. This means that this company is insulated from the negative effects of rising interest rates environment, which also guarantees its growth all through 2019 and 2020. Besides, even for the debt that it already holds, this company is in a good position to repay it with ease. The company has a current ratio of 1.91, which means that it is fully capable or repaying its $12.76 billion under the current interest rates environment.
Another aspect to this company that gives it good prospects for growth is its revenues growth. The company’s quarterly revenues growth (yoy) stands at 7.10%. This a healthy growth rate, and with LOXO, it is likely to keep growing. This means that all through 2019, it is likely to keep recording positive numbers going into 2019, and by extension keep giving positive results for investors.
Looking at it from a technicals perspective, Eli Lilly and company is clearly on a positive trajectory. In the last 52-weeks, it has gained by 34.62%. It is also trading above two key supports, the 50-day moving average at $113.59 and the 200-day moving average at $105.68. This is a good indicator of bullish sentiment and a signal that this company could make gains all through the year.