If there has been one sector that wishes the 2016 election was already here and gone, it is biotechnology. Shrill political rhetoric over drug pricing and further regulations hammered the sector while we were also in the midst of the worst market downturn since 2011.

The good news for investors is many of the top companies may be poised to post very strong earnings, and in a new research note UBS especially likes three top biotechs into the third-quarter print.

UBS makes the case that, following the recent broad-based selling, earnings can help serve as a catalyst toward lifting share prices in the sector higher. The UBS team thinks sales numbers for most of the top companies in the sector look beatable, and they are especially keen on three top stocks. These three stocks are all sector leaders and rated Buy.

Amgen

Amgen Inc. (NASDAQ: AMGN) posted outstanding second-quarter earnings, and biotech giant remains a top stock for investors to buy. It focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.

Many on Wall Street point to the company’s tremendous pipeline and outstanding forward earnings and revenue capabilities. Amgen’s double-digit earnings and revenue growth rate is expected to continue for the foreseeable future because of the company’s very deep clinical pipeline, which includes potential blockbusters Repatha for high cholesterol and Kyprolis for relapsed multiple myeloma. Amgen also has one of the sector’s deepest biosimilar pipelines, which is expected to generate upward of $3 billion in annual sales in the years ahead.

UBS also expects top and bottom line upside driven by Enbrel (with additional price hikes thrown in for good measure) as well as most other products and solid cost control.

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Amgen continues to trim its gigantic workforce as it bows to activist hedge fund shareholders. Hedge fund manager Dan Loeb’s Third Point has a big stake in Amgen. Loeb has been pushing the biotech giant to split into two separate companies to boost shareholder value.

Amgen shareholders are paid a 2.13% dividend. The UBS price target for the stock is $168, and the Thomson/First Call consensus target is higher at $185.08. Shares closed Thursday at $149.90.
Gilead Sciences

UBS has become very positive on this stock and it was recently added to the firm’s Equity Focus list. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific. Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults, and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

The company recently announced that the FDA has approved Letairis in combination with Eli Lilly’s Adcirca for reducing the risk of disease progression and hospitalization and improving exercise ability in patients suffering from pulmonary arterial hypertension Both Letairis and Adcirca are approved in the United States, European Union and elsewhere as once-daily treatments for patients with pulmonary arterial hypertension.

UBS is curious about what the non-retail business will look like this quarter. This refers to government plans like Medicaid. The firm thinks there is the possibility for significant spending that it has not modeled into current estimates.

Shareholders are paid a 1.75% dividend. The UBS price objective is $138, while the consensus target is $124.47. Shares closed most recently at $100.81.

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Regeneron Pharmaceuticals

This stock remains one of the favorites among portfolio managers and is another large cap stock to buy at UBS. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. With treatments for everything from macular degeneration to colorectal cancer, the company continues to exploit an extraordinary pipeline.

UBS is positive on the company’s prospects for solid Eylea growth and thinks it could surprise to the upside and drive earnings. Others on Wall Street cite Alirocumab, which is another new cholesterol drug with big expected upside. Dupilumab sales could peak at $10 billion a year, assuming $6 billion from the AD indication, with the remainder coming from asthma and nasal polyposis, for which the drug is also being tested.

The company reported second-quarter earnings of $2.89 a share, excluding one-time items, up 17% from a year earlier and above analysts’ consensus. Revenue jumped 50% to $999 million, $11 million more than consensus. The analysts also noted that the initial launch of Praluent may be gradual, but they remain bullish on the ultimate commercial opportunity given very large size of the market.

The UBS price target for this biotech monster is $565, and the consensus target is $617.36. The stock closed on Thursday at $491.10.

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While large cap biotech is still more suited for very aggressive growth portfolios, buying these market leaders makes good sense. Given the massive beat-down, if these companies surpass earnings expectations, the upside could be sizable.

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