The drug/biotech industry has seen a mixed performance in the past six months. The Large Cap Pharmaceuticals sector (comprising some of the biggest drugmakers in the world) has gained 6.5% compared with the S&P 500’s increase of 1.6%.

However, the riskier Medical-Biomedical and Genetics sector, which includes large as well as small biotech companies, has underperformed the S&P 500. The biotech industry has declined 10.3% against the S&P 500 increase of 1.6%, probably because of some pipeline setbacks faced by the industry.

Rising demand for new products, rampant innovation and product line extensions, strong clinical study results and frequent FDA approvals keep this sector on the growth track. Merger and acquisition (M&A) activity is gaining momentum with the new tax reform in place which is obviously a boon for any sector.

Meanwhile, government scrutiny of high drug prices, pricing and competitive pressure, slowdown in sales of some of the most high-profile older drugs and major pipeline setbacks act as deterrents.

Nonetheless, the drug/biotech industry is expected to recover from here. We believe that pipeline success, cost cutting, share buybacks, product launches, increased M&A and collaboration activity as well as appropriate utilization of cash should act in favor of the drug/biotech sector.

How to Pick Potential Q3 Winners?

There are a number of drug/biotech companies poised to surpass third-quarter estimates. However, given the large number of drug/biotech firms, the task of selecting stocks with possibilities to beat could appear quite daunting.

With the help of the Zacks Stock Screener, we have zeroed in on five drug/ biotech stocks that carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and have a positive Earnings ESP. It is a valuable tool for investors looking for stocks that are most likely to beat earnings estimates. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

5 Stocks Poised to Outperform

Allergan Plc. AGN has an Earnings ESP of +3.38% and a Zacks Rank #3. The Zacks Consensus Estimate for third-quarter 2018 is pegged at $4.01. The company has a trailing four-quarter average positive earnings surprise of 5.72%. The company is scheduled to report results on Oct 30, before market opens. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals Inc. REGN has an Earnings ESP of +4.65% and a Zacks Rank #3. The Zacks Consensus Estimate for third-quarter 2018 earnings is pegged at $5.21. The company has beaten earnings in the trailing four quarters, the average beat being 8.18%. The company is slated to release earnings on Nov 6, before market opens.

Amgen Inc. AMGN has an Earnings ESP of +3.54% and a Zacks Rank #2. The Zacks Consensus Estimate for third-quarter 2018 is pegged at $3.42. The company has beaten earnings in three of the trailing four quarters, the average positive earnings surprise being 4.29%. The company is scheduled to release earnings on Oct 30 after market close.

Alnylam Pharmaceuticals Inc. ALNY has an Earnings ESP of +12.54% and a Zacks Rank #3. The Zacks Consensus Estimate for third-quarter 2018 bottom line is pegged at a loss of $1.80. Alnylam is expected to report earnings on Nov 6.

AMAG Pharmaceuticals, Inc. AMAG has an Earnings ESP of +13.76% and a Zacks Rank #3. The consensus mark for the third quarter stands at a loss of 67 cents. AMAG is slated to announce results on Nov 1, before market opens.