There’s a new worry in the market – recession. Just when the Fed is finally chilling out, investors are moving on to the next bummer. But a turn could be coming, and Eli Lilly and Co. (LLY) is a great dividend play in the meantime, spells out Tom Hutchinson, editor of Cabot Dividend Investor.
Until a couple of weeks ago, the main concern was a more hawkish Fed. But the banking situation has mellowed the Fed, and the central bank just indicated it is nearly done hiking rates. It’s a relief on the Fed front but the economy could be a problem now.
This isn’t necessarily a bad thing though. The shift in investor angst may be a good thing because it expedites the end of this painful cycle. This was always going to be a process.
The Fed hikes rates until the economy tanks (and hopefully brings inflation down to earth). Then investors fret about the economy. Then investors sniff out the economic bottom and the market rallies into the next bear market.
Up until a couple weeks ago, the Fed phase of this process looked like it would last for many more months and possibly quarters. The Promised Land rally seemed a long way off. But we have seemingly jumped the line to the tanking economy phase. That glorious rally may only be six months or so away instead of a year or more.
Of course, the timing and severity of a possible recession is still unknown. And we’ll see if inflation falls in a meaningful way. We’re not out of the woods yet. Things may get worse before they get better. There is reason for hope though.
Eli Lilly and Co. (LLY)
As for LLY, after a stellar 2022 where it returned 34% in a bear market, LLY is having a tough time this year. But the pharmaceutical giant’s shares are notoriously bouncy and tend to pull back after every surge.
Despite the recent earnings stumble, this company still grew earnings 12.7% in 2022 and is expected to grow earnings by an average of 22% per year over the next five years. It also has two drugs that could be mega blockbusters in the pipeline that could be approved in the next year. Because of the recent price dip, the strong earnings outlook, and the possibility of big upside news, I like LLY here.
Recommended Action: Buy LLY.
