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Why Eli Lilly and Palo Alto Networks are both up on news from their competitors
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets: The Dow and S & P 500 were lower Friday after surging to record highs Thursday in response to the Fed cutting interest rates by 50 basis points. It’s been a strong week for stocks with the S & P 500 gaining roughly 1.5%. The top performing sectors week to date were energy, communication services, financials and industrials. Only three sectors were on pace for a down week: real estate, consumer staples, and health care. Obesity drugs: New information often sends one company’s stock higher and causes its biggest competitor to fall. Take a look at shares of Club name Eli Lilly . They were trading higher in a soft market after a key competitor in the obesity space reported disappointing Phase 2 trial results. That competitor, Novo Nordisk , said Friday its medicine monlunabant, which is a small molecule oral cannabinoid receptor (CB1) inverse agonist, showed weight loss of about 6% at 16 weeks. This was a big disappointment. The results fell short of Lilly’s lead daily oral GLP-1 orforglipron, which has showed about 8% weight loss in 16 weeks and was well below what Novo previously suggested. Analysts at Deutsche Bank called the trial results underwhelming, adding it “removes the threat of a large well-capitalized, small-molecule competitor to LLY’s orforglipron.” Competition in the obesity space is going to heat up over the next few years, but this disappointment from Novo Nordisk shows how hard it is to make a safe and effective drug. That’s why we’ve long disagreed with the selling of Eli Lilly when a competitor puts out a press release of an early-stage trial. Some medicines will work, some won’t. Some will be highly effective, others won’t move the needle. Some will have safety and tolerability issues. This is the nature of the business. But what we know now is that Eli Lilly’s leadership isn’t going away any time soon thanks to its current lineup of obesity medications, robust pipeline, and massive manufacturing scale. Cybersecurity stocks: In other scenarios, both a company and its competitor can trade up on new news. CrowdStrike shares were on the move higher after the cybersecurity company hosted its annual conference. One of the key revelations from the event was the very little customer churn in the aftermath of the global IT outage it caused in July. Recall, that we initially had a view that competitors like Club name Palo Alto Networks would take advantage of this event to pitch their products. However, we can’t say we are completely surprised to see very few customers leave CrowdStrike. When we looked at Palo Alto’s quarter in August, the results didn’t show a huge swing in market share resulting from the outage. Sure the quarter was good because Palo Alto has a great product and value proposition, but it didn’t suggest a massive departure from CrowdStrike. Both companies are great. So why aren’t Palo Alto shares lower? CrowdStrike’s commentary likely indicated that spending on cybersecurity is still healthy, which benefits both companies. Up next: We’ll see a pickup in earnings next week. Some of the notable reports are from KB Home , which will provide insight into housing, and Micron , which will give us a good look of demand and inventory levels for high bandwidth memory (which feeds into AI chips) as well as cellphones and personal computers. Jefferies , which is always a good preview into the banks, and Club name Costco , which is a good read on consumer spending, are also out next week. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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