Biotechnology,Pharmaceuticals and Healthcare Providers Are Most Attractive
After a five day rally led by chips, tech and industrials Morgan Stanley came out today calling the healthcare sector an overweight. Adam Parker, the US Equity Strategist published a report with the key themes and top picks by the US Healthcare Team. In a detailed 25 page report MS provides top picks and value drivers. Among the stocks rated overweight are : Allergan (AGN $82.71), Cardinal Health (CAH $43.14), Covidien (COV $48.52), Pharmasset (VRUS $76.26) and United Health (UNH $50.20). The healthcare sector overall is up 0.3% today with the broad based healthcare ETF(XLV $32.99) up 0.39% today and 4.67& YTD. The biotechnology ETF (IBB $97.75) is also up 4.7% YTD. Healthcare is biggest sector overweight because of better estimate achievability, more attractive relative valuation, and higher potential for positive capital deployment compared to consumer staples. Also consumer staples are more exposed to elevated commodity costs.
We wrote an article two weeks ago suggesting that large cap biotechnology and pharmaceuticals were a good place to hide from the MACRO downdraft caused by the Eurodebt crisis. This Morgan Stanley report should provide fuel for the sector especially since many of the stocks pay dividends and biotechnology is a seasonal leader in Q4. However two risks are that the Select Committee on Deficit Reduction may cut healthcare expenses and a weakening economy may cut healthcare utilization rates.