Wall Street Left This Stock for Dead… And It’s a Buy

Wall Street Left This Stock for Dead… And It’s a Buy

By Lucas Downey, Contributing Editor, TradeSmith Daily

Remember a month ago when no one wanted to own health care stocks?

We do too.

In fact, we highlighted how the out-of-favor sector reached the value zone.

And while the sector has yet to break the downtrend, signs are pointing to strength under the surface.

One example is the year-to-date sector performance table. Here you can see that all sectors except Consumer Staples are positive in 2025.

This indicates that money is flowing into many pockets of the market… including left-behind areas like health care stocks.

That’s a great situation because plenty of names in that group have been battered. And one special name, Eli Lilly (LLY), is flashing a buy signal.

Before we get to that powerful signal study, let’s first check in on what’s taking shape in the health care space in general.

In short, the group is healing.

Health Care Stocks Are Finally Showing Strength

As mentioned a month ago, drug and pharma companies have been under pressure as a new health czar, Robert F. Kennedy Jr., was set to take over.

Without clarity on what changes lay ahead, investors sold first and asked questions later.

Sometimes the bark is worse than the bite. Now that the new administration is here, some uncertainty has abated. And we can see that in a handful of bellwether health stocks.

On a one-month basis, the Health Care Select Sector SPDR Fund (XLV) is up 3.67%. Some of its largest holdings are participating in that uptrend:

On the flipside, the largest holding in XLV, Eli Lilly, with an 11% weighting, has massively underperformed, falling 5.21%:

Now, I do need to call out that the stock I profiled in my health care piece one month ago was in fact ISRG. Hopefully some of you were able to ride alongside that double-digit gain.

But if not, here’s another signal for you to consider…

One that suggests a big reversion signal could be ahead for lowly LLY shares.

It’s Time to Scale Into LLY

If you aren’t familiar with Eli Lilly, you can review a past article on the company when I named it a superstar stock to own for 2024.

Founded in 1876, this pharma giant has had tremendous success the last few years with its weight loss and diabetes drugs Mounjaro and Zepbound.

However, the one-month weakness in Eli Lilly’s shares is part of a trend that began in August. From its peak, the stock fell nearly 25% to a low of $725.

But what makes the stock interesting today from a data perspective is the past week, where the stock fell nearly 10%. Much of that can be attributed to the company providing underwhelming Q4 guidance.

Q4 revenues are expected to come in at $13.5 billion vs. estimates of $13.93 billion. However, FY 2025 revenue guidance actually came in at a midpoint of $59.5 billion vs. $58.44 billion expected.

This is what’s weighing on the shares:

Should investors duck and run?

NO.

When top-notch businesses stumble, lean in.

It isn’t often that a company of this caliber is sold this hard in such a short timeframe. That’s where the opportunity arises for investors looking to buy the dip on a leading company.

Here’s the signal…

On a five-day basis, shares of LLY dropped 9.2%. We were able to find 100 prior instances when LLY shares fell 9.2% or more over the same time period of a week.

Here’s why it’s a potential opportunity:

And in those timeframes, shares were higher 72% and 75% of the time, respectively:

Yes, it’s time to raise LLY to overweight, and scale into this name based on this evidence-rich study.

And if this signal holds true to history, a rising LLY share price will bode well for the Health Care sector in general, given its heavy weighting.

Regards,

Lucas Downey
Contributing Editor, TradeSmith Daily

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