3 Richly Valued Stocks I'll Be Watching Like a Hawk in 2025

Core Viewpoint - Investing in stocks with high valuations can be strategic but requires caution, especially with the current market's average P/E ratio at approximately 30.6 [1] Group 1: Eli Lilly - Eli Lilly is recognized for its successful drugs, Zepbound and Mounjaro, but has a high P/E ratio of 79, indicating potential overvaluation [3] - The company's operating income has increased by 71% over the last three years, reaching $15.1 billion [4] - Recent guidance indicates a revenue shortfall of about$400 million for Q4 2024, attributed to weaker sales growth of its key drugs [5] - If growth does not accelerate as expected, the stock may be deemed too expensive [6] Group 2: Costco Wholesale - Costco has a P/E ratio of 55.7 and has seen a 234% increase in net income over the last decade, reaching $7.6 billion [7] - The company is under new leadership with CEO Ron Vachris, whose performance will be closely monitored [8] - Potential employee strikes could threaten Costco's traditional advantages of employee loyalty and efficiency, impacting the investment thesis [9][10] Group 3: Nvidia - Nvidia, with a P/E ratio of 54.6, is viewed as a market bellwether and is heavily involved in AI hardware production [11] - The company's operating income has surged by approximately 2,400$71 billion [12] - High market expectations could lead to a significant drop in Nvidia's stock if growth slows, potentially affecting the broader market [13][14]