Why Eli Lilly and Palo Alto Networks could both rise on rival news

Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch—an actionable afternoon update just in time for the final hour of trading on Wall Street. Markets: The Dow Jones and S&P 500 were lower on Thursday after surging to record highs on Thursday after the Federal Reserve cut interest rates by 50 basis points. Stock markets had a strong week, with the S&P 500 up about 1.5%. The best-performing sectors so far this week are energy, communications services, financials and industrials. Only three sectors fell this week: real estate, consumer staples and health care. Diet Pills: New information tends to drive up a company’s stock price and cause its biggest rivals to fall. Look at the stock of club name Eli Lilly and Company. They traded higher in a weak market after a major rival in the obesity space reported disappointing phase 2 trial results. Rival Novo Nordisk said on Friday that its drug monlunabant, a small molecule oral cannabinoid receptor (CB1) inverse agonist, reduced body weight by about 6% at 16 weeks. This is a big disappointment. The results were lower than Eli Lilly’s leading daily oral GLP-1 orforglipron, which produced about 8% weight loss over 16 weeks, and well below levels previously recommended by Novo. Analysts at Deutsche Bank called the trial results impressive, adding that it “eliminates the threat of a well-capitalized small molecule competitor to LLY’s orforglipron.” Competition in the obesity space will intensify in the coming years, but Novel The disappointment with Nordisk shows how difficult it is to make a safe and effective drug. That’s why we have long disagreed with selling Eli Lilly when competitors issued press releases about early-stage trials. Some medications will work and some won’t. Some will be very effective and some won’t do anything at all. Some will have safety and tolerability issues. This is the nature of business. But what we know now is that Eli Lilly’s leadership isn’t going away anytime soon, thanks to its current lineup of obesity drugs, strong product pipeline, and massive manufacturing scale. Cybersecurity Stocks: In other cases, both the company and its competitors can trade based on new information. CrowdStrike shares rose after the cybersecurity company held its annual conference. An important takeaway from this incident is that after the global IT outage triggered in July, customer churn was very low. Recall that we initially thought competitors like club name Palo Alto Networks would use the event to market their products. However, we can’t say we’re entirely surprised that so few customers have left CrowdStrike. When we look at Palo Alto’s August quarter, the results don’t show huge swings in market share due to outages. Sure, it was a good quarter because Palo Alto has a great product and value proposition, but that doesn’t mean it’s a big departure from CrowdStrike. Both companies are great. So why aren’t Palo Alto’s shares falling? CrowdStrike’s comments could be a sign that cybersecurity spending remains healthy, which would be good for both companies. Next up: We’ll see earnings pick up next week. Some noteworthy reports are from KB Home, which will provide insight into housing, and Micron’s report, which will give us a clear look at demand and inventory levels for high-bandwidth memory (used in AI chips) as well as mobile phones and PCs . Jefferies has been a good preview of the banking sector, while club name Costco has been a good read on consumer spending, which will also be released next week. (See here for a complete list of stocks in the Jim Cramer Charitable Trust.) As a subscriber to Jim Cramer’s CNBC Investing Club, you will receive trade alerts before Jim makes his trades. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. No fiduciary duty or obligation shall exist or arise upon your receipt of any information relating to the Investment Club. No specific results or profits are guaranteed.

Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch—an actionable afternoon update just in time for the final hour of trading on Wall Street.

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