RBC swaps tech for health care, downgrades materials

Investing.com -- In a note on Wednesday, RBC Capital Markets upgraded health care to overweight from market weight and downgraded technology to market weight, saying it wants to shift toward cheaper parts of the market after a strong run.

Lori Calvasina, RBC’s head of U.S. equity strategy, said the technology downgrade is mostly driven by valuation.

She explained that the sector now trades slightly above average on both an absolute and relative median price-to-earnings basis, based on history going back to the late 1980s. When RBC upgraded it in mid-July, valuations had looked reasonable.

The firm also pointed to weaker flows into global developed market tech funds, though they have not turned negative, and some deceleration in earnings estimate revisions for semiconductor and semiconductor equipment stocks. Software valuations and earnings revisions remain attractive.

Calvasina said health care is “a natural destination to look to when dialing down Tech exposure,” noting the two sectors have performed inversely against the S&P 500 over the past year.

RBC cited improving flows into health care, a positive earnings and sales revision profile and attractive valuations. The sector also stood out in the firm’s analyst survey on risk questions, scoring most positively on the implications of the AI theme weakening.

Materials was cut to market weight from overweight. Calvasina said that despite attractive valuations, the sector now has one of the weaker earnings revision profiles in the index.

“Overall, it simply has developed more of a neutral profile than one that merits an overweight,” she wrote.

RBC remains overweight financials, underweight utilities, and market weight on industrials, staples, energy and consumer staples.

Original Article

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