ETFs
Best Growth Play: Eli Lilly vs. Vanguard Growth Index Fund Stocks
Both of these stocks have been incredible growth stocks lately.
US large-cap stocks have been on a relentless rise for most of the past two years. Despite persistent inflation, geopolitical turbulence, and historically high valuations for most major indices, US large-caps have shown no signs of slowing down in 2024.
In line with this trend, Eli Lilly (Love 0.78%), a major player in the fields of metabolic disorders, cancer, immunology and neuroscience, has seen its shares increase by nearly 60% this year.
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Meanwhile, the Growth of the avant-garde ETF Index Fund Shares (VUG 0.93%), a popular exchange-traded fund (ETF) focused on large-cap U.S. stocks, has also performed admirably in 2024, posting a 25% gain at the midpoint of the year.
Which of these growth stocks is the best buy heading into the second half of the year?
The case of Eli Lilly
Eli Lilly’s stock currently trades at a lofty 68 times forward earnings, reflecting investors’ high expectations for the company’s growth prospects. Despite offering a meager dividend yield of 0.58%, the company has increased its dividend by more than 15% per year over the past five years, which is one of the highest dividend growth rates among large-cap U.S. stocks.
This growth is supported by a modest distribution rate of 69%, which is relatively low for a sector whose average is above 80%.
When it comes to revenue growth, Lilly is firing on all cylinders. The company expects annual sales growth of more than 26% in 2024 and another 23.3% in 2025.
The main driver of this extraordinary growth is its weight loss drug Zepbound. The second major dual agonist to be introduced to the market, Zepbound could become the market leader within a few years, thanks to its excellent clinical profile.
Some industry estimates put Zepbound’s sales at $50 billion, making it by far the world’s best-selling pharmaceutical. However, there are several competing therapies in development that could significantly impact that number. Lilly has its own pipeline of next-generation weight-loss candidates that are expected to eat into Zepbound’s sales before the end of the decade.
The case for the Vanguard Growth Index Fund ETF
The Vanguard Growth Index Fund ETF is a passively managed fund that tracks the performance of CRSP US Large Cap Growth IndexThis popular Vanguard ETF offers a convenient way to gain exposure to many of the largest and best-performing U.S. large-cap growth stocks.
The Vanguard Growth Index Fund ETF has an attractive expense ratio of just 0.04%, a 30-day SEC yield of 0.42%, and a remarkable 10-year average annualized return of 15.3%. The fund holds 199 stocks, has a median market cap of $1.2 trillion, and trades at about 37 times the average forward earnings of its various holdings.
Despite its diverse portfolio, this ETF is heavily concentrated in consumer discretionary and technology stocks, with 76.5% of its holdings coming from just those two sectors. As a result, the Vanguard Growth Index Fund ETF isn’t exactly ideal for investors looking to increase their margin of safety through diversification across multiple sectors.
Verdict
Eli Lilly appears destined to be one of the next U.S. companies to join the trillion-dollar club. Its momentum is only accelerating as investors bet on companies with a strong foothold in the fight against obesity. Zepbound’s potential and Lilly’s strong pipeline make it an attractive option for those willing to take the risk of a single stock.
The Vanguard Growth Index Fund ETF, meanwhile, offers investors a direct line into the artificial intelligence revolution through its holdings in key players like Apple, MicrosoftAnd Nvidiawhile simultaneously benefiting from the rise of obesity behemoths like Lilly. It offers a more diversified approach to capturing growth trends among several large-cap leaders.
While both stocks appear poised for further gains, the choice likely depends on your risk tolerance and investment goals. Individual stocks like Eli Lilly are inherently riskier than funds like the Vanguard Growth Index Fund ETF, but they also tend to offer more dramatic upside potential.
In short, Lilly is likely to see a significantly larger decline in a broader market selloff than the Vanguard Growth Index Fund ETF. Lilly, however, will likely continue to outperform this popular Vanguard fund if current market conditions persist.
George Budwell has positions in Apple. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool recommends the following options: long January 2026 $395 call on Microsoft and short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.