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Better Growth Play: Eli Lilly vs. Vanguard Growth Index Fund ETF Shares

Both equities have been incredible growth plays of late.

Large-cap U.S. stocks have been on a relentless bull run for the better part of the last two years. Despite sticky inflation, geopolitical turmoil, and historically high valuations for most major indexes, U.S. large caps have shown no signs of cooling off in 2024.

In line with this trend, Eli Lilly (LLY 0.78%), a major player in metabolic disorders, cancer, immunology, and neuroscience, has seen its shares rise nearly 60% this year.

A hand drawing a growth curve.

Image source: Getty Images.

Meanwhile, the Vanguard Growth Index Fund ETF Shares (VUG 0.93%), a popular exchange-traded fund (ETF) focusing on large-cap U.S. stocks, has also performed admirably in 2024, posting a 25% gain at the midway point for the year.

Which of these growth plays is the better buy heading into the second half of the year?

The case for 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. While it offers a meager dividend yield of 0.58%, the company has boosted its dividend by over 15% per year over the prior five years — one of the highest dividend-growth rates among large-cap U.S. equities.

This growth is supported by a modest payout ratio of 69%, which is relatively low for an industry that averages over 80%.

When it comes to top-line growth, Lilly is firing on all cylinders. The company is forecast to grow annual sales by over 26% in 2024 and another 23.3% in 2025.

The main driver of this extraordinary growth is its weight loss drug Zepbound. As the second major dual agonist introduced into the market, Zepbound could become the market leader in a few short years, thanks to its superb clinical profile.

Some industry estimates have pegged Zepbound’s peak sales at around $50 billion, potentially making it the world’s best-selling pharma product by a wide margin. However, several competing therapies are in development, which could dramatically impact this figure. Lilly, in fact, has its own pipeline of next-generation weight loss candidates that are likely to cut into Zepbound’s sales before the decade’s end.

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 the CRSP US Large Cap Growth Index. This popular Vanguard ETF provides a convenient way to gain exposure to most of the largest and best-performing U.S. large-cap growth stocks.

The Vanguard Growth Index Fund ETF comes with an attractive expense ratio of just 0.04%, a 30-day SEC yield of 0.42%, and a noteworthy 10-year average annualized return of 15.3%. The fund holds 199 stocks, has a median market capitalization of $1.2 trillion, and trades at approximately 37 times the average forward earnings of its various holdings.

Despite its broad portfolio, this ETF is highly concentrated in consumer discretionary and technology stocks, with 76.5% of its holdings emanating from just these two sectors. As such, the Vanguard Growth Index Fund ETF isn’t exactly ideal for investors looking to boost their margin of safety via diversification across multiple sectors.

Verdict

Eli Lilly appears destined to be one of the next U.S. companies to join the trillion-dollar market-cap club. Its forward momentum is only accelerating as investors bid up companies with entrenched positions in obesity care. The potential of Zepbound and Lilly’s strong pipeline make it an attractive option for those willing to take on single-stock risk.

The Vanguard Growth Index Fund ETF, on the other hand, offers investors a direct line to both the artificial intelligence revolution through its holdings in key players like Apple, Microsoft, and Nvidia, while simultaneously benefiting from the surge in obesity juggernauts like Lilly. It provides a more diversified approach to capturing growth trends across multiple large-cap leaders.

While both equities appear poised for further gains, the choice arguably boils down to your risk tolerance and investment goals. Individual stocks like Eli Lilly are inherently riskier than funds like the Vanguard Growth Index Fund ETF but also tend to offer the potential for more dramatic gains.

In short, Lilly is likely to experience a substantially higher decline in a marketwide sell-off 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 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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