It never fails. The guilt by association when something goes awry in a high-profile stock almost always bleeds to others, even if they have not a thing in common with the offender. The specialty pharmaceutical sector is down a stunning 30% since the end of July. With drug pricing, and sales channels an issue, and politicians howling for action, the perfect negative storm has hit.

In a new research report, RBC sees the third-quarter earnings reports for the top companies on the sector as the first real chance for executives to directly address the big concerns on pricing, other specialty pharma issues and of course the big share price pullback since the summer. RBC thinks that none of the above should have an impact on outlooks, and fundamentals remain very positive. The firm also thinks that companies have the chance to initiate new and larger stock buyback programs, especially at such low price levels.

With the sector having the chance to move dramatically higher, three large cap leaders are the favorites. All are rated Outperform at RBC.

Allergan

This company has many of the top-selling drugs, but it has kept price increases reasonable compared to some of the egregious ones. Allergan Inc. (NYSE: AGN) is focused on developing, manufacturing and commercializing innovative branded pharmaceuticals, high-quality over-the-counter medicines and biologic products for patients around the world.

Allergan markets a portfolio of best-in-class products that provide valuable treatments for the central nervous system, eye care, medical aesthetics, gastroenterology, women’s health, urology, cardiovascular and anti-infective therapeutic categories. Allergan is an industry leader in research and development, with one of the broadest development pipelines in the pharmaceutical industry and a leading position in the submission of generic product applications globally.

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The company recently updated and upgraded earnings estimates for the balance of the year, and the response was very solid. This comes on the heels of Allergan’s gigantic $40.5 billion sale this summer of the firm’s generics business to Teva Pharmaceutical.

RBC’s price target for the stock is a gigantic $354, while the Thomson/First Call consensus price objective is higher at $357.17. Shares closed Tuesday at $285.77.
Endo International

This is the top pick at RBC and could hold incredible potential for patient investors. Endo International PLC (NASDAQ: ENDP) recently received FDA approval for a new drug that generated a sizable milestone payment to the company’s partner. The company is a specialty health care company, focused on branded and generic pharmaceuticals and devices worldwide.

Endo has taken a huge hit from the Valeant Pharmaceuticals issues and may be offering patient investors an incredible entry point. Endo answered the big drop by pointing out that the percentage of the company’s projected U.S. branded 2015 revenues at the midpoint of 2015 guidance that flow through specialty pharmacies is less than 10%, which represents approximately 3% of the company’s projected overall 2015 revenues. They also pointed out that the specialty pharmacies used by Endo are fully independent of the company. Endo does not have any ownership interest in, consolidate any financial results of, or have affiliations with any specialty pharmacy.

The RBC price target is a huge $100, and the consensus target is $92.47. The stock closed Tuesday at $58.52.

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Teva Pharmaceuticals

This generic giant could be giving investors the best entry point in years. Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA) is a leading global pharmaceutical company that delivers high-quality, patient-centric health care solutions every day. It is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area.

In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. The company integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies.

Teva is planning to raise as much as $7 billion by selling new stock this year to help fund its purchase of Allergan’s generic drug business, according to Wall Street reports. Teva ended its hostile bid for Mylan back in the summer, opting instead to buying Allergan’s generic-drug business for $40.5 billion in cash and stock to bolster its position as the world’s largest maker of generic drugs. Teva entered into a $33.75 billion bridge-financing facility with a group of 10 banks, including a senior unsecured loan of as much as $27 billion and about $6.75 billion in equity bridge financing.

The RBC price target is $85, with the consensus target is $78.14. The stock closed Tuesday at $59.44. Investors may want to wait for the huge share sale to be completed, as the price almost undoubtedly will drift lower.

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The risk for investors isn’t these companies and their strong products and earnings. The risk is the continued headline and political rhetoric, not just now, but all through the campaign and right up to the 2016 elections. Politicians see these companies as easy targets and a very good way to make voters forget about the real issues at hand.

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