Recently, the temple meditation has led to deeper reflections on the market's tail end. Upon returning, I allocated 60% of our research team's resources to the U.S. stock market (fortunately, most team members have a brokerage background). The crypto market is gradually shrinking, and we cannot forget the tragedy of October 11. Therefore, we choose to participate in a safer investment market and reduce our allocation to crypto assets. Today, we will discuss the favorable U.S. stock sectors during the interest rate cut cycle!

During the interest rate cut cycle, which undervalued companies are worth allocating? Buffett has chosen real estate companies. Berkshire Hathaway increased its stake in residential builder Lennar (#LEN) in the second quarter of 2025 and opened a new position in another large residential builder, D.R. Horton (#DHI). However, this has led to a surge in retail investor interest, with the wildly popular OpenDoor Technologies (#OPEN), a real estate sales technology company, seeing a staggering 20-fold increase in three months.

In terms of interest rate cuts, we are particularly optimistic about the innovative drug sector. The U.S. innovative drug market has been sluggish in recent years due to the impact of interest rate hikes and the suppression from the Trump administration this year. However, its potential and valuation have reached an optimal allocation window, compounded by the long-term benefits of the interest rate cut cycle. This is a sector that is deeply worth allocating.

The interest rate cut will have a long-term positive impact on pharmaceutical companies, especially innovative drug companies. We know that much of the value of innovative drugs lies in the future; a new drug still in development may take 3-8 years or even longer to become profitable. The market will discount these future earnings to calculate today's value, often using market interest rates as a reference, especially the risk-free rate of U.S. Treasuries.

• High interest rates → harsher discounting → future money is worth less today → valuations of innovative drug companies are easily depressed (especially those currently unprofitable and relying on future blockbuster drugs to support their valuations).

• Lower interest rates → less harsh discounting → future earnings are worth more today → valuations of innovative drugs and early-stage biotech often rise.

Additionally, interest rate cuts will help biopharmaceutical companies by lowering overall comprehensive costs. First, the financing costs for pharmaceutical companies decrease, making it cheaper for companies to borrow or pursue mergers and acquisitions, and early-stage companies find it easier to secure funding, potentially leading to a return of VC money.

Finally, pharmaceutical companies are keen on mergers and acquisitions (M&A), especially in certain niche markets, where establishing a monopoly will be key to dominance and will directly affect pricing power. Interest rate cuts will drive a wave of M&A, as large pharmaceutical companies have ample cash and low debt costs, looking to use acquisitions to fill gaps (buying promising pipelines). Lower interest rates will reduce the cost of capital for buyers, increasing the likelihood of large pharmaceutical companies acquiring small innovative firms, thereby raising overall expectations for innovative drug valuations.

Here, I recommend five leading companies in the U.S. innovative drug sector for reference!

1️⃣ #Pfizer (#PFE)

• Main business: Pfizer is one of the largest pharmaceutical companies globally, with operations in drug research and development, vaccines, consumer healthcare products, etc. It has a presence in multiple fields, including vaccines (such as pneumococcal vaccines), oncology, cardiovascular, and diabetes/metabolic diseases. During the COVID-19 pandemic, its vaccine and oral drug Paxlovid garnered significant attention, but as the pandemic eased, this revenue has significantly declined. Overall, Pfizer has both "stable cash flow" (mature products, vaccines) and "platform + explosive points" (mRNA, antibody drugs, ADC collaborations), making it quite comprehensive.

• Revenue: Q2 2025 revenue is approximately $14.7B (quarterly), with the company performing steadily in the first half of 2025 and adjusting its EPS guidance. Notably, Pfizer's dividend is quite stable, with a dividend yield of around 6.8%, higher than U.S. Treasury yields.

• Key drugs: Comirnaty (COVID-19 mRNA vaccine, in collaboration with BioNTech), Padcev (ADC in collaboration with Astellas), and several assets in development (including seasonal vaccine products and cancer combinations). Recently, the combination of Padcev + Keytruda has shown promise at academic conferences, potentially driving label expansions.

• Future expectations: Vaccines (regulatory approval/launch of seasonal vaccine formulations), new indication data for Padcev combination therapies, and important Phase 3 topline approvals in the company's pipeline.

2️⃣ #AstraZeneca (#AZN)

• Main business: AstraZeneca is a large British pharmaceutical company primarily profiting from oncology, respiratory/immunology, cardiovascular metabolism, and vaccines. Recently, it has made significant progress in ADCs (antibody-drug conjugates) and breast cancer/triple-negative breast cancer, with favorable clinical data that has substantial revenue-driving potential and imaginative space.

• Revenue: Q2 2025 revenue is approximately $14.4B (quarterly), with quarterly revenue and earnings per share exceeding expectations. The dividend yield is low at only 2.3%, with most revenue directed towards R&D.

• Key drugs: In oncology, Faslodex, among others; in cardiovascular, renal, and metabolic drugs, Evusheld (AZD7442), baxdrostat, AZD0780, etc.; in respiratory and immunology drugs; and in neuroscience (mental illness) drugs, Seroquel XR.

• Future expectations: AstraZeneca resembles a "stable bet on new cancer drugs"—if the Enhertu series and Datroway can truly scale in the coming years, the company can continue to outperform the market; if clinical or regulatory issues arise, growth may revert to "old pharmaceutical company" levels. In short, clinical milestones will determine AstraZeneca's future direction.

3️⃣ #EliLilly (#LLY)

• Main business: Eli Lilly is a well-established American multinational pharmaceutical company founded in 1876. The company conducts large clinical trials in 55 countries worldwide, with products sold in about 120 countries. Its core products mainly include traditional prescription drugs for diabetes, central nervous system/mental health, and cancer, but the biggest highlight in recent years has been its strong rise in the anti-obesity and GLP-1 (and new generation dual/triple agonists) markets, leading to explosive revenue growth. Lilly is seen as one of the leaders in the weight loss drug sector in 2025.

• Revenue: Q2 2025 revenue is approximately $15.5B (quarterly), with quarterly revenue and earnings per share exceeding expectations. The dividend yield is low at only 0.69%, with most revenue directed towards R&D.

• Key drugs: Diabetes and weight loss drugs (GLP-1/GIP receptor agonists, etc.), Mounjaro for treating type 2 diabetes, which also shows significant weight loss effects. Trulicity (Dulaglutide) is a best-selling type 2 diabetes drug. Zepbound (Tirzepatide) is used for weight loss indications. Jardiance (Empagliflozin) treats type 2 diabetes and heart failure. Insulin products: such as Humalog and Humulin. Alzheimer's disease (in development/pending approval), Donanemab is an investigational drug for treating Alzheimer's disease, expected to be one of the key drugs in the future. Other investigational or new drugs, Orforglipron is an oral small molecule GLP-1 receptor agonist with potential in diabetes and weight loss.

• Future expectations: The current logic is "weight loss/GLP-1 profitability + pipeline continues to scale." As long as new drugs continue to show better efficacy, and reimbursement and supply chain issues are manageable, Lilly's revenue can continue to grow; however, risks include regulatory pressures, pricing pressures, insurance restrictions, and competition (especially from Novo Nordisk and other competitors) that may erode margins. In simple terms, Lilly is currently a "box office star," but whether the box office can sustain depends on insurance and competition.

4️⃣ #Regeneron (#REGN)

• Main business: Regeneron is an American pharmaceutical company founded in 1988. Initially focused on neurotrophic factors and their regenerative capabilities, it later expanded into other areas such as cytokines. It is a typical "innovative biopharmaceutical company," with a few high-margin drugs (like EYLEA) serving as cash cows, and new products can quickly drive valuations. The company has significant market share in eye diseases, allergic and inflammatory diseases, cancer, cardiovascular, and metabolic diseases.

• Revenue: Q2 2025 revenue is approximately $3.6B (quarterly), with quarterly revenue and earnings per share falling short of expectations. The dividend yield is low at only 0.31%, and the company has a buyback plan. The volatility is largely due to EYLEA and other drugs being the main drivers, with product sales fluctuations and rising costs raising performance concerns.

• Key drugs: Dupixent (dupilumab) for treating moderate to severe atopic dermatitis. EYLEA (aflibercept) / EYLEA HD (aflibercept) injections for treating various eye diseases, including wet age-related macular degeneration (Wet AMD), diabetic macular edema, and macular edema due to retinal vein occlusion. Libtayo (cemiplimab), an immune checkpoint inhibitor (PD-1 inhibitor), for treating certain skin squamous cell carcinomas and other specific cancers. Praluent (alirocumab) for treating hypercholesterolemia.

• Future expectations: Progress on the FDA review of EYLEA HD, which, if approved, could stimulate the growth of EYLEA-related products. Key applications for drugs like odronextamab, if approved, will also help boost corporate profit growth.

5️⃣ #NovoNordisk (#NVO)

• Main business: Novo Nordisk is a Danish biopharmaceutical company founded in 1923, focusing on the research, production, and sales of treatment drugs for serious chronic diseases such as diabetes and obesity. It holds a leading position in the global diabetes treatment market, offering products such as insulin and GLP-1 therapies, while also operating a biopharmaceutical division providing treatments for hemophilia and growth hormone deficiencies. The diabetes and weight loss drugs (GLP-1 series) are absolutely core, with Wegovy and Ozempic making Novo a leader in the weight loss and diabetes sectors.

• Revenue: Q2 2025 revenue is approximately $77.1B (quarterly), with quarterly revenue and earnings per share falling short of expectations. The dividend yield is decent at 3.22%, and the company has a buyback plan. Over the past year, the stock has seen significant declines, mainly due to intense competition in the weight loss drug sector and a severe business tilt, with diabetes and weight loss drugs accounting for 93% of its main business.

• Key drugs: Ozempic, a GLP-1 (glucagon-like peptide-1) receptor agonist for treating type 2 diabetes. Wegovy, a high-dose version of Ozempic, specifically approved for chronic weight management (weight loss). Oral semaglutide: Novo Nordisk has also excelled in oral GLP-1 drugs.

• Future expectations: Novo Nordisk is currently the "GLP-1 leader," with long-term pricing power and channel advantages; however, caution is warranted: the market share may be eroded by competitors (such as Eli Lilly), and there could be issues with insurance price limits or supply chains. If the company can maintain its lead through new indications, oral drugs, or better commercialization, the long-term outlook remains very robust.

Overall, as the interest rate cut in October approaches, coupled with rising expectations for a rate cut in December, the market for interest rate cut concept stocks can indeed be a focal point. Currently, companies related to innovative drugs have already undergone a round of valuation cuts and are generally in a relatively reasonable range. As a strategy combining interest rate cuts and defensive measures, the high-profit segment of the #AI sector can consider allocating to the innovative drug field. This will be a stable and balanced approach. If you are like me, a long-term value and dividend investor: Pfizer and Novo Nordisk are more suitable as "stable income + stable R&D exposure" allocations; if your style is more aggressive, looking for growth and able to withstand volatility, you might consider the "innovation + scale" combination of Eli Lilly, AstraZeneca, and Regeneron.

Currently, these companies are all available on #MSX. For trading U.S. stocks, I choose to use the #RWA tokenized platform #MSX to invest in the U.S. stock market: http://msx.com/?code=Vu2v44

Early U.S. stock investment fans and partners can message me privately to join the free U.S. stock discussion and exploration community! 🧐

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