1) I continue to like weight-loss-drug kingpin Eli Lilly (LLY) over the No. 2 player in the space, Novo Nordisk (NVO), even though Lilly is more richly valued.
But someone in a WhatsApp investment group that I'm part of disagrees. So we had a spirited debate this morning that I think is worth sharing...
He highlighted the dosing differences, which he claims is why there's greater weight loss with Lilly's drug (tirzepatide, under the brand names Mounjaro/Zepbound) than Novo's drug (semaglutide, under the brand names Ozempic/Wegovy):
In the head-to-head trials between the drugs, the dosing is very different. Lilly uses the maximum dose possible, 15 milligrams ("mg"), while Novo is only 2 mg to 2.4 mg.
This is key. Lilly is playing the media/marketing game. They can shout that after 80 weeks, their drugs reduce marginally more weight than Novo. But at a much higher dose, are you surprised?
He also covered the drugs' side effects:
Reported gastro side effects from the Lilly GLP-1s are higher, probably because they are "over dosing" their customers. They do this because it fools the market...
But think about it economically. Greater side effects may not lead to optimizing lifetime value of customers.
But he acknowledged that Lilly is a more well-managed company:
Novo has issues as a business. I am not convinced by the quality of C-suite management. In this regard, Lilly is far better.
He concluded by posing a question about the companies' relative valuations:
Novo is 10 times earnings, Lilly is 40 times. Neither company is going away. It is a duopoly. With re-ratings due on both stocks (albeit in different directions), which is likely to yield the best shareholder returns between now and the end of the decade?
Regarding the dosing differences, I corrected him:
It has nothing to do with Lilly "playing the media/marketing game." The maximum dose numbers differ because semaglutide and tirzepatide are entirely different chemical molecules with different potencies, weights, and receptor targets.
As for the differences in weight loss, I replied:
You write about "marginally" more weight loss, but ask an obese person if there's a difference between losing 13.7% of their body weight on Wegovy and 20.2% on Zepbound (source). And retatrutide is an astounding 29%!
Regarding the side effects, I sent him this Google Gemini response to the question, "Which has more side effects, semaglutide or tirzepatide?":
Nausea and Constipation: Tends to be more common or pronounced with semaglutide (such as Ozempic and Wegovy).
Diarrhea: Tends to be reported more frequently with tirzepatide (such as Mounjaro and Zepbound), especially at higher doses.
Treatment Discontinuation: Some clinical data, like the SURMOUNT-5 trial, indicate that patients may be slightly more likely to stop semaglutide than tirzepatide due to side effects, though individual tolerance varies widely.
Other Risks: Semaglutide has been linked in some studies to a higher risk of gallbladder-related issues (like gallstones) compared to tirzepatide. Both share FDA boxed warnings regarding the risk of thyroid C-cell tumors.
I also shared my own anecdotal evidence:
I know a lot of people who had nasty gastrointestinal issues with Ozempic who switched to Zepbound and are very happy – the side effects disappeared and they lost more weight (they'd plateaued on Ozempic). I know zero people (from a sample of hundreds) who switched in the other direction. This is consistent with what we're seeing in the marketplace vis-a-vis sales/market share and pricing power.
I concluded that Lilly's tirzepatide is clearly a superior drug to Novo's semaglutide for the vast majority of users (who can afford the higher price and/or get insurance coverage for it).
Lastly, I covered each stock's valuation and which is the better buy today:
You write that NVO is trading at 10 times earnings versus LLY at 40 times. But this is based on trailing earnings, whereas the market is always forward looking. Where the stocks go in the future will depend on future earnings.
Based on 2027 earnings consensus analysts' estimates, the valuation difference is much narrower. Analysts expect Novo's normalized earnings next year to be $3.38 per share, down 3% year over year. That means NVO, at this morning's price of $39.15, is trading at 11.6 times next year's estimates.
In contrast, analysts expect Lilly to earn $47.34 per share next year, up 29%. That means at this morning's price of $1,157, LLY is trading at 24.4 times next year's estimates. (And I think the launch of retatrutide next year will lead to Lilly exceeding this forecast, meaning the multiple is actually lower.)
Reasonable people can debate whether LLY deserves to trade at double the forward earnings multiple as NVO. But my long experience is that an investor is generally much better off over time buying the market leader (growing around 30% and trading at 24 times) than the No. 2 (with declining earnings and trading at 12 times)...
That's why my team and I recommended Lilly in our June issue of Stansberry's Investment Advisory. Subscribers have access to our full write-up on the company and specific buy advice. If you're not already subscribed, you can learn how by clicking right here.
2) Shares of athletic shoemaker On (ONON) soared as much as 14% this morning...
The company unveiled long-term financial targets and authorized its first share-repurchase program, worth up to $1 billion through the end of 2029, as part of its Investor Day today. (You can watch the recording here and read the press release here.)
It reaffirmed guidance for the third quarter for a constant-currency net sales growth rate of around 17%. It also reaffirmed this year's guidance for constant-currency net sales growth in the low-20% range, a gross profit margin of at least 65%, and an adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") margin of 19.5% to 20%.
And according to Business Wire, the company set ambitious long-term targets:
... a high-teens constant currency net sales [compound annual growth rate ("CAGR")] through 2029, sustain an industry-leading gross profit margin of at least 65%, and drive meaningful [selling, general, and administrative] leverage. This results in an adjusted EBITDA margin ambition of at least 22% by 2029 and a three-year adjusted EBITDA CAGR of more than 20%.
I took a first look at On's historical financials last Wednesday, concluding that it has:
... a very strong financial picture. On has developed unique and stylish products that have been very popular, driving strong revenue growth. And it's able to charge premium prices, translating into even faster growth in profits and [free cash flow].
I also highlighted that the stock was close to a three-year low and trading at its lowest forward price-to-earnings multiple ever.
Two readers sent me their thoughts on On, starting with Cindy R.:
A few years ago, my millennial children all jumped on the On bandwagon, which got me and my husband to buy a pair. Since then, I've seen them all over the country on various folks' feet, and saw a lot of them in Central Europe this spring – mostly on Americans' feet. But I think they are going the way of the dodo shoe birds – Allbirds, Toms, Rothys, Supra, Vans... for these negative reasons:
- A hot brand is now seen on the old folks like me.
- My Hokas are of more or equal comfort for less cost, so I'm going back to them for running.
- I think they appeal to people who own one or two pairs at a time, so I don't think they will be coming back from the brink. They will just hang on or go down over time.
- Their clothing line is BORING, though we love Roger Federer and Ben Shelton. Frances Tiafoe looked way better in his hot pink Lululemon outfit.
Reader Scott W. added:
I've bought On's stock twice. Made money the first time, bought back a small position six months ago, and losing this time.
A year ago, I bought five pairs of Cloudstratus 3s at a discount. Loved the style, but the shoes ended up hurting my feet, despite what I thought was decent cushioning.
One of my close friends had a similar experience. She was wearing Ons to a baseball game with me recently and I asked her about them. She said she hated them because, while she liked their look, they made her feet hurt.
So, despite seeing them everywhere whenever I'm at an airport or the U.S. Open, I do wonder about their cushioning as well as durability. I visited the On store in New York City last year, tried on several styles, but all had less cushioning than my Asics, which I've worn for years.
Scott concluded:
Bottom line, the risk is that On is another fad apparel stock – terrific styling but questionable features. That's my concern, beyond the premium pricing. It can't afford for people to sour on wearing them over time. And I think they've had senior management turnover in recent months – that is also not a great sign.
So, they're still an "in" brand and the stock looks cheap, but I'm not at all convinced they are paying enough attention to how the shoes feel on your feet over time. Hope I'm wrong, as they still appear everywhere. But then again, so do Nikes, yet its stock is at a multiyear low.
By the way, Scott is the reader I met at the U.S. Open earlier this month – here's the picture of us from my September 9 e-mail:
Thanks for the feedback, Cindy and Scott!
I think they make valid comparisons to Lululemon Athletica (LULU) and Nike (NKE), which have been massive value traps the past few years. The footwear/apparel industry is so tough...
While On's guidance and outlook today are indeed bullish, I think the big move in the stock reflects this. So I'm going to stay on the sidelines for now.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.