The 1 Sector We Can’t Ignore This Earnings Season

As earnings season rolls around once more this week, all eyes are on the usual companies, but should we be focusing on this all-important sector?

Earnings season kicked off on Monday, with all the usual suspects in the banking sector getting underway this week, including Goldman Sachs (NYSE: GS), JP Morgan (NYSE: JPM), Wells Fargo (NYSE: WFC) and the rest of the financial gang. 

This is how it always goes, with the big banks reporting their earnings first, followed by the ‘cool’ kids: the Apple’s (NASDAQ: AAPL), Netflix’s (NASDAQ: NFLX), and Amazon’s (NASDAQ: AMZN). Others lie in wait, such as the ‘hype-beast’ or ‘meme stock’ companies such as Tesla (NASDAQ: TSLA), Virgin Galactic (NYSE: SPCE), and Beyond Meat (NASDAQ: BYND). Of course, in between all of these companies and their earnings are the thousands of other, more ‘boring’ stocks — the Autodesk’s (NASDAQ: ADSK) and Blackline’s (NASDAQ: BL) of the world. 

However, all of these earnings will be overshadowed by one key factor: the COVID-19 pandemic. Already, many of the big names have pulled guidance figures, including Apple, Microsoft (NASDAQ: MSFT), and Nike (NYSE: NKE). We know this will be the driving force behind earnings, generally in a negative manner. 

But we are ignoring one key industry that holds the fate of all these companies, and the world really, in its very wealthy hands: 

Big Pharma.

Who are the biggest pharmaceutical stocks? 

COVID-19 is a pandemic, and according to a recent World Health Organization (WHO) press release, it could plague mankind for a very long time. In reality, we will be stuck with this virus until we find a vaccine for it, which is no small task. 

According to the WHO, there are more than 100 coronavirus vaccines in development globally, of which a number of candidates are currently being tested in human trials. Among these candidates are some of the biggest stocks in pharmaceuticals, which you may have heard of, and others you likely have not. 

  • Amgen (NASDAQ: AMGN) and Adaptive Biotechnologies (NASDAQ: ADPT) are in the preclinical stages of a vaccine, while BioNTech (NASDAQ: BNTX) and Pfizer (NYSE: PFE) are at a similar stage.
  • Dynavax Technologies (NASDAQ: DVAX) is making its adjuvant technology available to companies developing COVID-19 vaccines.
  • GlaxoSmithKline (NYSE: GSK) and Heat Biologics (NASDAQ: HTBX) are both providing help via their platforms in developing a preclinical vaccine.
  • Inovio Pharmaceuticals (NASDAQ: INO) is in Phase 1 clinical trials.
  • Johnson & Johnson (NYSE: JNJ) aims to put its lead vaccine candidate in a Phase 1 clinical trial in September.
  • CytoDyn Inc (OTCMKTS: CYDY) is in phase 2 clinical trials for its leronlimab product.
  • Gilead Sciences (NASDAQ: GILD) is in Phase 3 clinical trials for the use of redesivir.

We have entered a new space-race-esque sprint for the moon (in this case, a vaccine). Whichever company gets there first is going to hold the key to reopening the world for humanity which has now been cornered into the realms of Zoom (NASDAQ: ZM), Netflix, and Slack (NYSE: WORK). 

What can we expect from Big Pharma’s earnings calls? 

Not unlike everyone else, Big Pharma earnings calls will be dominated by the coronavirus. But unlike everyone else, coronavirus is literally their business. Watch out for the companies that are making the most progress with trials and perhaps even working together. 

It is a concerning thought to think of the race for a vaccine as a competition and not a joint humanitarian effort, but there is no point in being naive. Whoever creates this vaccine first will have first-mover advantage on a multi-billion dollar cure. Just think of how much damage the virus has done to both the economy and our lives; who wouldn’t pay top dollar to end the suffering?

The earnings calls have already begun, with Johnson and Johnson reporting yesterday, topping Q1 earnings forecasts while trimming full-year guidance. 

“Johnson & Johnson is built for times like this, and we are leveraging our scientific expertise, operational scale and financial strength in the effort to advance the work on our lead COVID-19 vaccine candidate,” said CEO Alex Gorsky. “We are committed to beginning production at risk imminently and bringing an affordable and accessible vaccine to the public on a not-for-profit basis for emergency pandemic use.”

As the rest of these earnings come around, we can expect similar reports from other companies working on a vaccine. 

Is it time to invest in Big Pharma? 

Pharmaceutical stocks have traditionally been considered high-risk for investors, but the current pandemic shows how there will always be a need for them.  The pharmaceutical industry can present profitable opportunities for those who do their research.

By keeping a close eye during this earnings call on the companies that report positive developments in clinical trials with a COVID-19 vaccine, an investor can gauge how well the company is doing. Clinical trials are the make-or-break phase of a patented drug or vaccine. The one that looks closest to an FDA approval for human trials is the one in the lead, but as always, it is best to understand the sector before diving in and investing. 

For now, I’m taking a ‘wait and see’ approach with Big Pharma, but this earnings season, it is definitely a sector you should not be ignoring.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.