Credit Suisse Upgrades Pharma/Biotech to Overeight (IBB)
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Credit Suisse upgraded the Pharma/Biotech sector (NYSE: IBB) from Market Weight to Overweight.
Chief US Equity Strategist Lori Calvasina commented, "Given our concerns about broad stock market valuations and higher risks for a short term dip, we want to boost our defensive exposure, and are upgrading Pharma, Biotech & Life Sciences to Overweight from Market Weight. This is not a clear cut call. Like most of the other heavily weighted groups within the growth indices, the performance of this group has been inversely correlated with interest rate direction over the past decade. But when asked about what we would buy to get more defensive, we routinely find that our impulse is to point clients to this area, which we last upgraded in July 2016 to market weight, removing the underweight that we'd put in place in October 2015. "
There are four things they like about the group today:
(1) Valuations are slightly attractive in large cap, and are reasonable in small cap, despite the strong outperformance that has been seen in the group YTD. Within both size segments it is still has one of the best valuation profiles that we see relative to other defensive groups.
(2) Our earnings momentum indicator has been weak, but has fallen to the low end of its historical range and may be poised to revert higher.
(3) While Health Care funds flows have been deeply negative for much of the past year, flows showed signs of stabilizing in February, with very slight inflows returning.
(4) Just as we no longer worry about extended valuations in the space, we no longer worry about crowding risks. We have seen signs that the buy side has been in a state of retreat in the large caps, and a wide range of views on our small cap positioning indicators. This is very different from the fall of 2015, when valuation and crowding concerns were high
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