If you like Eli Lilly, then you’ll love this little-known specialty production stock

Mark Twain is rumored to have said, “During the gold rush, it’s a good time to be in the picking and shoveling business.”

Whether he said these words or not is not so important. The bigger point here is that there tend to be less obvious ways to take advantage of situations every time a hot new product hits the shelves.

A great example of this can be found in the pharmaceutical industry. Over the past few years, glucagon-like peptide 1 (GLP-1) agonists such as Mounjaro and Zepbound have revolutionized the way care is delivered to patients with diabetes and obesity. Eli Lilly is the maker of these blockbuster drugs, and investors have driven the stock higher over the past two years.

However, the investment opportunity surrounding the GLP-1 realm goes much deeper than pharmaceutical stocks. One company that is benefiting greatly from the increase in demand for GLP-1 drugs is Jacobs Solutions (J 0.26%).

Let’s break down what Jacobs Solutions does and analyze why now looks like a profitable opportunity to get some stock.

What does Jacobs Solutions do?

Jacobs Solutions is in the construction business, but not in the way you might think. Instead of building houses, Jacobs specializes in highly sophisticated and time-consuming infrastructure projects such as data centers, spacecraft, urban development and life science facilities.

Some of the company’s clients include NASA, Procter & Gambleand Bristol Myers Squibb.

Image source: Getty Images.

What makes Jacobs Solutions so unique?

During a recent interview with CNBC’s Jim Cramer, Jacobs CEO Bob Pragada shared some really interesting insight into how the company is playing a key role in the future of GLP-1 development by working alongside Lilly.

Big news! 📺🚨

CEO Bob Pragada stopped by @CNBC to discuss end-to-end lifecycle solutions in infrastructure consulting and advisory, advanced facilities, life sciences, water and more.

Watch here ➡️ https://t.co/AFXnQ0LgB0

— Jacobs (@JacobsConnects) August 16, 2024

There are some important ideas to unpack from the video shared above.

Pragada explains how complicated Lilly’s GLP-1 facilities are. He makes it clear that these projects are not simply implemented and available for a variety of builders to bid on. Because competition is extremely limited and the need for Jacobs’ expertise is high, the company is in a good position to hold pricing power for its services.

Given this dynamic, I would argue that Jacobs has built a relatively competitive moat. Additionally, the subtle opportunity with Jacobs is that the company tends to gain repeat business from its customers during expansion phases.

As Cramer alludes to, it’s entirely possible that Lilly will build additional plants in Asia, and Europe should demand its GLP-1 drugs justify the investment. If that happens, Jacobs seems well-positioned to win this business going forward and be a tangential beneficiary of the various themes that fuel its clients.

Why now looks like a great opportunity to buy Jacobs Solutions stock

I see several reasons to buy Jacobs stock right now.

First, the company recently announced that it is divesting its Mission Critical Solutions (CMS) business as well as segments of its Divergent Solutions business — specifically the Cyber ​​& Intelligence business.

Pragada notes that divesting these non-core assets will help make Jacobs “a more focused, higher-margin company, more closely aligned with key global mega trends.”

I find these observations encouraging and see the spin-off as a sign that Jacobs understands where its growth is coming from and where the company wants to continue to invest.

Conformable JP Morganthe total addressable market (TAM) for GLP-1 treatments could reach $100 billion by 2030 in the US alone

To me, these forecasts imply that the demand for GLP-1 will be here for some time. Therefore, I am optimistic that Lilly will need to continue to invest in infrastructure to meet supply and demand capabilities. For these reasons, I think Jacobs’ relationship with Lilly could be transformative.

Outside of the weight loss space, Jacobs also plays a quiet role in various areas of artificial intelligence (AI), including data centers and electric vehicle manufacturing.

As of this writing, Jacobs trades at a forward price-earnings (P/E) multiple of 16.1. In comparison, the forward P/E of S&P 500 it is around 21.7.

The company’s low valuation relative to the broader market could suggest that investors are overlooking Jacobs Solutions. While the company itself may not be selling breakthrough drugs or AI software, these opportunities are still important to Jacobs because they help top players behind the scenes.

The long-term secular headwinds fueling many of the markets in which Jacobs operates, combined with the company’s competitive advantage and reasonable valuation, make this a compelling investment opportunity in my eyes.