'Most defensive sector': UBS names stocks that can 'safely survive war'
"Pharma is the most defensive sector" amid conflict in the Middle East - UBS/Photo: shutterstock.com/Jonathan Weiss
Pharmaceutical stocks could be one of the defensive assets amid the escalating conflict in the Middle East, analysts at UBS said, their note quoted by CNBC.
Some of the traditional "safe havens" in the first week of the war between the U.S. and Iran showed weakness: gold fell in price by more than 1.5%, and the sector of consumer staples came under pressure due to rising oil and gasoline prices, the channel notes. Against this background, analysts at UBS suggested another way to protect the portfolio - they believe that pharmaceutical securities can relatively calmly survive the war with Iran
"Many investors are looking for ways to diversify amid tensions in the Middle East," wrote UBS strategist Andrew Garthwaite, "The pharmaceutical sector is the most defensive and has a very close inverse correlation with PMIs," he said, implying that these stocks feel better than the market when the economy slows.
Eli Lilly and Merck are among the companies named by the bank's analyst. UBS gave both securities a "Buy" rating, i.e. recommends them for purchase. However, Garthwaite specified that it concerns more than three dozen pharmaceutical players. Over the past six months, the value of Eli Lilly is up about 36% and Merck is up 37%.
Garthwaite noted that pharma companies remain relatively inexpensive at valuations and also benefit from the companies' low debt burden - it is, he said, "one of the best sectors in terms of momentum when credit spreads are rising."
An additional factor in favor of these assets may be the high share of short positions: according to UBS, pharmaceuticals rank seventh out of 29 global industries by this indicator. This increases the likelihood of short-squeeze - a sharp rise in shares, when investors who bet on their fall are forced to close short positions and buy back securities on the market.
In addition, UBS analysts believe the sector could benefit in the era of generative AI, as these tools have the potential to improve R&D efficiency in pharmaceuticals, CNBC paraphrases the note.
This article was AI-translated and verified by a human editor
